Railroad Stocks Rising After Buffett Praises Sector

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Warren Buffett issued a sunny report to Berkshire Hathaway (BRK.A) shareholders on Saturday, patting himself on the back for buying up railroad operator Burlington Northern Santa Fe. Buffett says that rail transportation has economic and environmental advantages over trucking. Railroad stocks are up on Monday, with the Dow Jones Railroad Index rising 1.3% in early trading. Union Pacific (UNP) was up 1.2%; CSX (CSX) rose; Norfolk Southern (NSC) rose 1.3%; and Canadian National Railway (CNI) was up 1.6%.

In 2010, Berkshire Hathaway bought the remaining stake in Burlington that it didn’t already own, a decision he said “will increase Berkshire’s “normal” earning power by nearly 40% pre-tax and by well over 30% after-tax.” He was bullish on rail transportation in general:

“Both of us are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits.

Over time, the movement of goods in the United States will increase, and BNSF should get its full share of the gain. The railroad will need to invest massively to bring about this growth, but no one is better situated than Berkshire to supply the funds required. However slow the economy, or chaotic the markets, our checks will clear.”

Original Article Source by Barrons.com