Advance Token to Nearest Railroad… If Owned By Buffett, Take Note!
I came across this excellent article on Yahoo! Finance (which actually originated on Seeking Alpha) about Warren Buffett’s appetite for the railroad stocks. We had touched on this just very briefly in my Sunday post The Week Ahead when looking at stocks that are due to announce their quarterly earnings this week. Union Pacific (UNP) was one of those stocks set to report on July 19th, and one that Warren Buffett takes an interest in himself.
The above mentioned article was interesting because it highlighted some things that you might not otherwise consider when looking at railroad stocks, especially in comparison with other transportation & logistics stocks. For instance, the article notes that the railroad is not nearly as affected by the relative change in gas & oil prices as say the trucking industry or common carriers like FedEx and UPS.
But there are a couple of things that I want to build off of from this article.
1) The article mentions that when Warren Buffett invests in something like a railroad stock other investors follow suit, thereby pushing the stock in question higher. This makes me wonder: Is there a Warren Buffett stock effect in the stock market?!
One has to wonder if the mere interest of one individual in a particular stock or sector can and should have a significant effect on the valuation of the business(es) in question. Without having done any homework on this whatsoever, I wouldn’t hesitate to say yes! Even as the words of the Fed Chairman don’t necessarily represent just the words of the Chairman but rather represents the analysis of many economists working for the Chairman, so too does the words of Mr. Buffett represent the analysis of Berkshire Hathaway’s employees and the management of its subsidiaries.
What I mean by this is that if Mr. Buffett becomes bullish or bearish on something, you had better take note of it! A man with that many connections and the capability to summons an advisor or specialist with knowledge of any given business provides Mr. Buffett the ability to make informed decisions and capitalize on that same decision using cash where others would need to leverage assets to achieve the same results.
2) The second thing I wanted to briefly point out is something I think the article fails to mention. Perhaps these railroads are not undervalued from a P/E or earnings standpoint at the time that Mr. Buffett decides to buy them, but possibly that Mr. Buffett sees additional value that others are overlooking. The article asks if Mr. Buffett is going to cause Berkshire Hathaway to derail due to buying a railroad that is relatively expensive. But I wonder if it’s worth considering that railroads have traditionally held vast amounts of real estate. These railroads could be excellent investments if there was some belief that they would one day liquidate some land holdings that many have held since the eastern US was connected to the western side.
Now I am certainly not bashing the article. It does an excellent job making its point that we do need and will always need these logistics companies to move freight. And it further makes the valid point that some of the developing countries are just now coming on board the train so to speak. In the event the above link does not work, I have posted the article to my own website in Adobe PDF format. As always, I welcome your comments and feedback…