Wednesday, August 29, 2007

What’s up with Berkshire’s Burlington Northern buys?

Warren Buffett has been buying Burlington Northern Santa Fe in “all you can eat” quantities at or below $80/share. Since purchases were made public months ago and some initial analysis was done in the press at that time, yet Buffett is still buying, it seems a good time to think about why he continues to buy this stock.

BNSF has had fairly soft volumes in 2007, compared with 2006, especially in intermodal (containers and trailers) and lumber/building materials. Coal and grain volumes have held up well, but Buffett is likely not buying for 2007 performance.

We know that railroads offer pricing advantages over truckers that increase with higher oil prices, and that BNSF has a network that spans from the Pacific through the heartland and to the Gulf of Mexico.

But what else is there that could make this company even more valuable over the next decade, and potentially even more valuable than Union Pacific?

No comments: