Berkshire Hathaway Inc bought a 10.9 percent stake in Burlington Northern Santa Fe Corp to become the largest shareholder at a time when rail stocks were hovering close to their all-time highs.
Warren Buffett's Berkshire had accumulated 39 million shares of the second-largest US railroad as of Thursday, paying between US$81.18 and US$81.80 for the final 1.6 million, according to filings with the Securities and Exchange Commission.
Buffett, the world's second-richest man, made his investment name by transforming Berkshire from a failing textile manufacturer into a US$168 billion holding company by buying stocks that were out of favor. He told investors in his annual letter in 2000 that what gets Berkshire's attention is "a comfortable business at a comfortable price."
This is not "a typical investment'' for Buffett, said Donald Broughton, a senior analyst with A.G. Edwards & Sons Inc in St. Louis.
"The industry is at peak operating margins and peak valuations," Broughton said.
Burlington Northern's share price rose US$1.03 to US$82.72 last Thursday -- 4 percent shy of its record-high closing of US$$86.84 on April 24 last year.
Union Pacific Corp, the largest US railroad, traded at US$$103.20, slightly lower than its closing high of US$104.49 set on Feb. 14.
Broughton downgraded Burlington Northern to hold from buy last year based on the valuation.
"Just because Warren Buffett made an investment doesn't make it a good investment," he said.
The Standard & Poor's 500 Railroads Index, which consists of Burlington Northern, Union Pacific, CSX Corp and Norfolk Southern Corp, closed at a record 400.79 on Feb. 14. The index traded at 393.85 last Thursday. Burlington Northern's shares have risen 12 percent this year compared with an 11 percent gain in the railroads index.
Buffett, 76, didn't indicate when he started accumulating the railroad shares other than to advise his stockholders on Feb. 28 that he didn't itemize two holdings valued at US$1.9 billion "because we continue to buy them. I could of course, tell you their names. But then I would have to kill you."
Berkshire treasurer Marc Hamburg declined to comment over the weekend on Burlington Northern purchase. Dick Russack, a Burlington Northern spokesman, didn't return phone messages on Sunday.
The market value of the Berkshire Hathaway's Burlington Northern stake is US$3.2 billion, making it the company's seventh-largest holding by market value following Coca-Cola Co, American Express Co, Wells Fargo & Co, Procter & Gamble Co, Moody's Corp and PetroChina Co.
Railroad stocks have been rising as hedge funds and private-equity funds have been buying, independent analyst Anthony Hatch of New York said.
"Buffett is a long-term investor and BNSF is an excellent long-term holding," he said. "Buffett buys and holds; he's not the hedge fund community."
Although the freight economy slowed since September, Hatch said: "Rail stocks have done well as they reinvented themselves. The industry is not like its historic past."
Burlington Northern focuses on intermodal transportation, in which products travel from ships and trucks to railroads. As one of the two main Western US railroads, it transports Asian imports that arrive at the California ports. It also ships grain and coal, which helped boost its fourth-quarter profit 21 percent last year.
Intermodal traffic was up 0.2 percent to 2.9 million trailers and containers in the first quarter, the Association of American Railroads said.
Buffett's stock purchases make him the largest shareholder of Burlington Northern, ahead of Marsico Capital Management LLC,which owned 32 million shares for an 8.9 percent stake in December, data compiled by Bloomberg shows.
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