Buffett Buys Burlington Northern

November 3, 2009

stock ratings

Stock	Grade
CNI Canadian National Railway Co.
CP Canadian Pacific Railway Ltd.
CSX CSX Corp.
DDRX Diedrich Coffee Inc.
GWR Genesee & Wyoming Inc. (Cl A)
KSU Kansas City Southern
NSC Norfolk Southern Corp.
UNP Union Pacific Corp.

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Warren Buffett's Berkshire Hathaway (BRKA) announced today that it's buying Burlington Northern Sante Fe (BNI) for $34 billion.

Berkshire already owns 22% of the company, and now they're buying the rest. BNI's stock closed yesterday at $76.07 and Buffett is offering $100 a share, which is a huge premium. The deal still has to be approved by the board, but it will be hard to say "no" to such a large premium.

So what does this deal mean for investors? For one, it means that Buffett thinks the recovery is for real. I should add that he was a major backer of President Obama's campaign so he may be very committed to see a sustainable economic recovery.

My view is that this deal is a big mistake. I have Burlington Northern rated as a Strong Sell. In fact, I rate nearly all the major rail stocks as Sell. Here's a rundown:

In addition to BNI, under Strong Sell I have Norfolk Southern (NSC) and Union Pacific (UNP).

Under Sell, I have Kansas City Southern (KSU), Genesee & Wyoming (GWR), CSX Corp. (CSX) and Canadian Pacific (CP).

The only Hold I have is Canadian National Railway (CNI).

So what do I like? Diedrich Coffee (DDRX). I'm a big fan of the coffee stock and it's up 25% today on strong earnings.

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