Wednesday, January 21, 2009

Warren Buffett Buys BN

I have heard that the three largest users of diesel fuel in the nation are, in order: 1) the US Navy, 2) the Union Pacific, and 3) the Burlington Northern. So now the railways are soaking up the cost savings of significantly lower fuel prices. Over the last several years, the rail lines had been slowly getting away from fuel surcharges and baking increased costs into their rates.

Fuel prices have dropped much more than we could ever have anticipated, and yet the BN's share price is down 25% since June ($80 to $60). Apparently, this is due to less tonnage on the system. But when shipping comes back around - look out. Mr. Buffett is famous for saying that "price is what you pay for a stock, but value is what it is worth." The Oracle's stake in BN is now up to over 20%. BN seems to me to be a fantastic value play.

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