Railroads: Buffett buys into BNSF

Warren Buffett has always said that he only invests in businesses he can understand.   That includes companies like Coca-Cola, Burger King and others. Straightforward business models whose supply and demand economics are predictable.

Railroads are the ultimate brick and mortar business, since they have been linchpins for long haul transportation for 150 years.   They are also the only mode of transportation that literally "owns the way".  Railroads own their own trackage. Capacity is fixed and can be managed with long term contracts.

Tight capacity control, an expanding market, and good market positioning are the kinds of mechanics Warren Buffett looks for.   As a result, Buffett's Berkshire Hathaway corporation has taken a 10.9 percent interest in Burlington Northern Santa Fe Corp. , making Berkshire Hathaway BNSF's largest stockholder.

With heavy intermodal demand caused by increased fuel costs, expanding Asian imports, and a strong industrial products market presence,  BNSF is profitable and is expected to remain so in the buoyant US rail market. The railroad is at its peak valuation with strong demand for capacity within its 32,000 mile network.

Because of demand, the railroads are now starting to invest in more track and other operational improvements.  A clear sign of industry sector health.

BNSF stock (NYSE:BNI) as of this morning was trading at $87.33 a share which is a $20.00 increase since September 2006.  Berkshire Hathaway meanwhile remains the worlds most expensive stock, trading  today at $109450.00 per share. 

It is my life goal to own ONE share of BRK.A stock!

clipped from www.bloomberg.com Berkshire Holds 10.9% Stake in Burlington Northern By Nancy Kercheval and Miles Weiss April 7 (Bloomberg) -- Warren Buffett's Berkshire Hathaway Inc. has acquired a 10.9 percent stake in Burlington Northern Santa Fe Corp., according to Securities and Exchange Commission filings, making the billionaire's company the largest holder.          Berkshire owned 39 million shares of the second-largest U.S. railroad as of April 5, after reporting a holding of 37.4 million on April 3, the filings show.          Buffett reported to shareholders on Feb. 28 all the company's holdings with a market value of more than $700 million at the end of 2006. He noted that there were two exceptions to the list with a value of $1.9 billion that he didn't itemize ``because we continue to buy them. I could of course, tell you their names. But then I would have to kill you.'' The market value of the railroad stake is $3.2 billion. "Buffett's buying a great company,'' said Andrew Kilpatrick, author of "Of Permanent Value: The Story of Warren Buffett,'' in an interview from Birmingham, Alabama, today. ``But who would have thought with all that is going on in the current era that railroads would be on his mind?''          Marc Hamburg, Berkshire Hathaway treasurer, declined to discuss the investment. Dick Russack and Patrick Hiatt, spokesmen for Burlington Northern, didn't return phone calls.

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