Big investment in cars.....

U.S. rail stocks up on Buffett, Icahn stakes

By Ben Klayman
Reuters
Wednesday, May 16, 2007; 10:24 AM



CHICAGO (Reuters) - Several U.S. railroads saw their shares rise on Wednesday, the day after major investors disclosed stakes in an industry benefiting from strong pricing.

On Tuesday, Warren Buffett's Berkshire Hathaway Inc. , in filings with the U.S. Securities and Exchange Commission, revealed stakes in Union Pacific Corp. and Norfolk Southern Corp. .

That disclosure came five weeks after the billionaire said he had invested in three railroads, but only identified Burlington Northern Santa Fe Corp.

Also on Tuesday, billionaire investor Carl Icahn disclosed in SEC filings that he bought a 2.6 million share stake in CSX Corp.

British hedge fund The Children's Investment Fund also disclosed its rail holdings in filings on Tuesday. It owns 17.8 million shares of CSX, 4.3 million shares in Norfolk Southern and 2.1 million shares in Union Pacific.

The Dow Jones transportation average <.DJT> index was up 0.8 percent Wednesday morning, with shares of CSX, Burlington Northern, Union Pacific and Norfolk Southern up 0.5 percent to 1 percent.

Bear Stearns analyst Edward Wolfe in a research note pointed out the strong sector fundamentals are drawing interest from many investors, including Jana Partners.

"In addition to continued strong pricing and positive long- term secular demand fundamentals, we believe the strong run for the group so far in 2007 has been driven by newfound investor interest in the railroads," he wrote in the note.

"We have seen material stakes from well-known, long-term value investors, such as Warren Buffett; activist shareholders, such as Atticus Capital and The Children's Investment Fund; private equity firm Fortress Investment Group; and a host of other new investors in the sector," Wolfe added.

Companies' shares often rise when Berkshire discloses investment stakes. Regulators sometimes let Berkshire delay disclosures so investors cannot try to copy Buffett before he has finished buying.

Disclosure of the railroad stakes boosted shares of Burlington Northern, Norfolk Southern, Union Pacific and CSX on April 9. Burlington Northern gained the most, 6.5 percent.

Buffett generally favors companies with stable, easy-to-understand businesses that are industry leaders and whose shares appear to be undervalued.

On April 6, Berkshire had disclosed a 39.03 million share, or 11 percent, stake in railroad company Burlington Northern. Three days later, Buffett said Berkshire invested $700 million in a second railroad and slightly less in a third.

"What was a terrible business 30 years ago (is) a better business now," Buffett said at Berkshire's annual shareholder meeting on May 5 in Omaha, Nebraska, where it is based.

As of March 31, Berkshire said it owned 6.4 million shares of Norfolk Southern valued at $322 million, and 10.5 million shares of Union Pacific valued at $1.07 billion.

According to Tuesday's filings, Buffett began accumulating railroad stakes as early as last year's third quarter.

© 2007 Reuters