Buffett Buys Burlington Northern

November 3, 2009

stock ratings

Stock	Grade
BNI Burlington Northern Santa Fe Corp.
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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