Berkshire owned 39,027,430 shares of Burlington Northern with a market value of $3.23 billion as of April 5, according to a Friday filing with the U.S. Securities and Exchange Commission. Prior to Friday, Berkshire had not disclosed a stake in the second-largest U.S. railroad.
It wasn't immediately clear why Berkshire amassed the stake. Berkshire and Burlington Northern did not immediately return calls seeking comment.
Railroads seem like an unusual investment for Buffett, Claman said. He's a value investor and usually buys companies that are trading at a discount. But Union Pacific, for example, isn't far from its 52-week high. Neither is Burlington Northern, CSX,Norfolk Southern or Canadian National .
This suggests that railroads are at peak valuation, Claman said. Keep in mind that Buffet often sees things other investors miss, she added. If so, this could mean the stocks have room to go higher.
But Edward Wolfe, an analyst at Bear Stearns said last week in a research note that freight volume on U.S. railroads declined 2.8% in the first quarter after gaining 0.5% in the fourth quarter of 2006. Wolfe noted, "While we still believe the freight economy is currently in recession, we have heard anecdotally from shippers that freight demand has picked up in recent weeks."
Wolfe restated his "outperform" rating on Burlington Northern Santa Fe.
The railroad said it expects to take a charge of $80 million, or about 14 cents a share, against first-quarter earnings for environmental cleanup and technology costs. But that still puts earnings in line with Wall Street's estimates, said Thomas R. Wadewitz, an analyst at JP Morgan Securities.
"While on-going environmental clean-up costs are a part of recurring expenses, we believe the site-specific increases in costs are fairly viewed as one-time charges," Wadewitz said in a research report. He rates the stock "neutral."
Citing a trade publication, Trade World, Claman said Union Pacific is lifting a long-standing embargo on signing up new customers for coal produced in Wyoming's Powder River Basin. Claman said this could mean that shipments from the region, already the nation's largest coal producer, might continue to grow.
Buffett, in his February 28 letter to Berkshire shareholders, named 17 companies in which Omaha, Nebraska-based Berkshire owned at least $700 million of common stock.
He declined at the time to itemize two other companies in which Berkshire owned $1.9 billion of stock "because we continue to buy them. I could, of course, tell you their names. But then I would have to kill you." Berkshire's total common stock investments totaled $61.5 billion at year end.
Shares of companies often get a boost when Berkshire discloses investment stakes.
Earlier this year, Korean steel maker POSCO rose 3.1%, British retailer Tesco 2.1% and health insurer UnitedHealth Group 3.8% on their first respective trading days after Berkshire revealed sizable stakes.
Burlington Northern said on Thursday first-quarter profit will be cut to about 96 cents per share because of $80 million of charges for environmental costs and the write-off of a technology system. Analysts on average had expected profit of $1.09 per share, according to Reuters Estimates.
Berkshire's stake in Fort Worth, Texas-based Burlington Northern tops the 8.9% stake, or 32.04 million shares, that Marsico Capital Management held at year end, according to Thomson ShareWatch.
The SEC allows Buffett to often delay disclosing Berkshire's purchases so investors cannot try to mimic them.
According to SEC rules, Berkshire would have had to quickly disclose a 5% stake had Buffett intended to use it to influence Burlington Northern management. The rules require Berkshire to quickly disclose a 10% stake even if Berkshire plans to be a passive shareholder.
Berkshire in its annual report named five companies in which it held double-digit percentage stakes at year end: American Express, Moody's, USG, Washington Post and White Mountains Insurance Group. Its largest listed holding by market value, at $9.65 billion, was Coca-Cola.