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Sunday, 08/10/2008 2:55:23 PM

Sunday, August 10, 2008 2:55:23 PM

Post# of 237
If Warren Buffett Takes a Train,
Should You Go for a Ride, Too?

By JAY PALMER

August 10, 2008



http://online.wsj.com/article/SB121834079190027499.html

Across America, the train whistle is a-blowin'.

Amtrak ridership is at a record, and local transit systems from Washington, D.C., to Oakland, Calif., are scrambling to add cars and track. Freight trains, too, are barreling into a new, more promising future.

Put simply, with roads congested and gas prices sky-high, Americans are getting fed up with driving. Flying is hitting similar problems.

Little wonder that local authorities expect passenger-train ridership to keep climbing, even as the U.S. Chamber of Commerce expects freight railroads to see an 88% increase in demand over the next quarter-century.

Investors may want to hop aboard before the train leaves the station. Warren Buffett, for one, has done so. Over the past 18 months, his Berkshire Hathaway has built up an 18% equity stake in Burlington Northern Santa Fe, along with smaller but substantial holdings in a number of other freight lines.

Though the weak economy has curtailed freight volumes, the stocks of many freight railways have moved up markedly, as investors look down the tracks to better days. But given the long-term growth prospects -- do you ever expect to see $1.50-a-gallon gas again? -- the group still looks reasonably priced, especially since its earnings outlook is strong.

Some bulls see some freight stocks climbing 10% to 15% over the next year -- and much higher over the long haul.

In rail freight, seven lines -- Union Pacific, Burlington Northern, CSX, Norfolk Southern, Canadian National, Canadian Pacific and Kansas City Southern -- handle close to 90% of the nation's freight rail traffic. Business has been very good. That's in part because locomotives today get roughly 80% more mileage from a gallon of diesel than they did 30 years ago, making them much more fuel-efficient than big trucks when the amount they can haul is figured into the equation.

On the passenger side of the business, there are no U.S. railways with publicly traded stocks, but investors can find some intriguing plays among equipment makers like Canada's Bombardier (BBD-B.Toronto), which makes locomotives, passenger cars and more, and Pennsylvania-based Wabtec, which makes brake systems for the mass-transit and long-distance rail markets.

And there are opportunities overseas. China, for instance, is quadrupling its spending on its railroads to $160 billion over the next three years. That's why China Railway Group (0390.Hong Kong) and China Railway Construction (1186.Hong Kong) are attracting attention as promising plays for the long term.






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