So where could the value that Buffett so clearly sees be coming from? Two things spring immediately to mind:
1. The coverage maps of the three railroads are somewhat complimentary - BNI and UNP operating in different portions of the west, NSC operating in the east. A merger could create efficiencies that increase the value of the combined companies that do not currently exist.
2. With the passing of "Peak Oil" and higher gas prices, railroads will increase in value as they are the most efficient method to move cargo across the country.
Regardless of what Buffett sees in the railroads, this is the most significant "loading up" we've seen from them in quite some time. It's been years, almost decades, since they made their initial stakes in American Express, Coca-Cola, Gillette (since bought by PG), and Wells Fargo, and you may have missed that boat. However, right now it seems that railroads are his next great investment and those who knew about that initial Form 4 filing have entered on the ground floor with him.
Tuesday, June 19, 2007
Yahoo Finance: The Railroad Industry-Warren Buffet's Latest Big Bet
Click here for full article.