Warren Buffett’s New Taste in Railroad Stocks

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Apr 09 2007
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Warren Buffett’s appetite changed for one of the oldest transportation of mankind. Warren’s Berkshire Hathaway’s (NYSE: BRK.A, stock) has acquired 10.9 percent stake in Burlington Northern Santa Fe Corporation (NYSE: BNI, stock), instantly making Bershire the largest shareholder of the railroad company.

Berkshire’s 39,027,430 shares in BNI are worth $3.23 billion based on the stock’s closing price on Apr-5-2007. The stock price of BNI jumped $3.03 before market open today, Apr-9-2007, after the disclosure – creating a clean profit of $118 million. Isn’t it easy to make money with money? BNI is the second largest railroad after Union Pacific Corporation (NYSE: UNP, stock). Shares of companies often get a boost when Berkshire discloses investment stakes.
It was not known why Berkshire purchased the stake, Reuters reported. Mr. Buffett, in his Feb. 28 letter to Berkshire shareholders, named 17 companies in which Berkshire, based in Omaha, owned at least $700 million of common stock. He declined at the time to itemize two other companies in which Berkshire owned $1.9 billion of stock “because we continue to buy them. I could, of course, tell you their names. But then I would have to kill you.”

Burlington Northern said on Thursday that first-quarter profit would be cut to about 96 cents a share because of $80 million of charges for environmental costs and the write-off of a technology system. Berkshire’s total common stock investments totaled $61.5 billion at year end 2006.

Earlier this year, the Korean steelmaker Posco rose 3.1 percent, the British retailer (LON: TSCO) gained 2.1 percent and the health insurer UnitedHealth Group Inc (NYSE: UNH, stock) advanced 3.8 percent on their first respective trading days after Berkshire revealed sizable stakes.

CNBC reporter notes that besides Burlington Northern Santa Fe Corp., Warren Buffett has invested in another North American railroad yet to be disclosed. The reporter mentions CSX Corp. (NYSE: CSX, stock), Norfolk Southern Corp. (NYSE: NSC, stock), Union Pacific Corp. (NYSE: UNP, stock) and Canadian National Railway Company (NYSE: CNI, stock) as possibilities. All the stocks mentioned jumped in pre-market and expected to be in volatile mode pending Warren’s announcement. As long as Buffett keep mum on the company, all these stocks will be heavily speculated.

Last week, Canadian National Railway Co. said its first-quarter earnings per share would decline 5 to 10 percent because of weather and a conductors strike earlier in the period. Investors also absorbed Norfolk Southern Corp. profit warning from after the bell Wednesday blaming declining automotive and housing-related freight. It makes sense for Warren to buy during current railroad recession in tandem with buy low sell high rule.

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