Buffett sees a bright future in rail

OMAHA, Neb. – Warren Buffett’s company recently invested in three railroads, and in the process, Berkshire Hathaway Inc. became the largest shareholder in the Burlington Northern Santa Fe Corp., according to a company filing and a media report that the company confirmed.

The disclosure sent shares of all the major freight railroads up in afternoon trading Monday, with Burlington Northern leading the pack with a nearly 8 percent gain.

Omaha-based Berkshire Hathaway revealed in a filing with the Securities and Exchange Commission that it owned 39 million shares of Burlington Northern as of last Thursday. The cable network CNBC reported Buffett said Berkshire had also invested in two other railroads that he declined to name.

Buffett’s assistant, Debbie Bosanek, said no one at Berkshire was available Monday to discuss the company’s investments. But she said the CNBC report about Berkshire investing in two railroads besides Burlington Northern Santa Fe was accurate.

Buffett told CNBC that Berkshire had invested about $700 million in one North American railroad and slightly less than that in another railroad.

Berkshire’s investment in Burlington Northern represents 10.9 percent of the nation’s second-largest railroad.

The next largest Burlington Northern shareholder, Marsico Capital Management, holds about 32 million shares.

Buffett hinted at two major new investments as he described the performance of Berkshire’s $61.5 billion investment portfolio in his annual letter to shareholders that was released March 1. He said then that two investments with a market value of more $700 million at the end of 2006 were not named.

“We don’t itemize the two securities referred to, which have a market value of $1.9 billion, because we continue to buy them,” Buffett said in his letter. “I could, of course, tell you their names. But then I would have to kill you.”

Aside from his annual letter, Buffett rarely discusses Berkshire’s investments, so it’s not clear whether the railroad investments are the two investments he referred to.

Bear, Stearns &Co. analyst Edward Wolfe said in a research note that Berkshire’s investment in BNSF should be a positive sign for all the major freight railroads.

Wolfe said Burlington Northern has several advantages because it is seeing better volumes than its competitors, strong pricing and easing fuel prices. He has an $88 target price on the stock.

Investors seemed to agree with Wolfe’s view because shares of other major North American freight railroads were up on Monday on the New York Stock Exchange.

Shares of Burlington Northern Santa Fe rose $5.61, or 6.8 percent, to $88.33 in afternoon trading Monday after rising to a 52-week high of $93.22 earlier in the day. That’s already more than the $81.18 Berkshire paid for 1.2 million shares last Thursday.

Shares of Union Pacific Corp., the nation’s largest railroad, gained $4.04, or 3.9 percent, to $107.24 in afternoon trading in the NYSE while Norfolk Southern Corp.’s shares gained $2.02, or 4 percent, to $53, and CSX Corp. gained 95 cents, or 2.3 percent, to $41.91.