Railroad stocks have been tumbling in recent months, but MarketWatch
suggests they are great investment choice since Warren Buffett and Bill Gates continue to embrace the bruised industry.
MarketWatch’s Jeff Reeves points out that shares of CSX Corp. (CSX), Union Pacific (UNP), and Norfolk Southern (NSC) are each down between 20% and 25% since January. North of the border, shares of Canadian National Railway (CNI), and Canadian Pacific Railway (CP) haven’t fared much better.
“But decent dividends, bargain valuations after the selloff, and the hope of a continued recovery for the U.S. economy may hint at a buying opportunity for long-term investors looking to take a position in rail stocks now. If so, you’d be on board with Warren Buffett, whose Berkshire Hathaway purchased Burlington Northern Santa Fe in 2009, and Microsoft (MSFT) founder Bill Gates, who is a major Canadian National shareholder,” Reeves wrote.
He offered a handful of reasons on why railroads are a savvy investment now. He says that cost-cutting by rail companies is finally paying off and with “decent dividends” being paid at the moment, earnings are poised to shine amid the crude-oil price collapse.
Best of all, he says analysts are bullish on such companies. “Wall Street price targets suggest that analysts think the worst is over for railroads,” he wrote.
Rail giant BNSF Railway was Berkshire Hathaway's biggest purchase ever in 2010 at $34 billion, and is currently the largest entity in its portfolio to date.
BNSF Executive Chairman Matthew Rose recently told CNBC that being owned by Buffet is just like a "marriage" that's going great.
"I told my team when we first did this that it'll take us 10 years to review this, and then we'll look back and say, 'Were we a better company in this structure versus being a publicly traded company?'" Rose asked. "And I think the answer will be yes."
Since Buffett bought the company, BNSF's total revenue has grown from $14 billion to $23 billion in just five years, an increase of roughly 64 percent. In addition, the company plans to spend $6 billion — a record level — in maintaining and expanding its 32,500-mile rail network this year, CNBC reported.
Meanwhile, Gates recently increased his overall investment in Canadian National Railway Co. to 13.83 percent.
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