When I heard the news about the Oracle of Omaha making his biggest investment ever, I expected it to be for some wildly underpriced asset. Wrong. Burlington Northern Santa Fe is a star — a real winner. Burlington’s stock makes the shares of Goldman Sachs look like they’ve been riding a horse and buggy this past decade: The iron man has raced ahead 300% while the much reviled money machine is up a mere 83%.
And the Dow? Hardly worth mentioning — but I will if for no other reason than to remind everyone that even after a nine-month monster rally the Industrial Average still sits about 15% below the start of the decade: 9771.91 vs 11,49712. And that going-nowhere-in-a-hurry performance is calculated without the likes of Citigroup and AIG. Can you imagine how much lower the country’s most widely watched gauge of economic health would be if its editors hadn’t dumped those losers?
During the market crack-up last year, Warren Buffett snatched up some pretty good shares on the cheap, including Goldman Sachs, General Electric and Wrigley. But the $26 billion purchase of Burlington Northern Santa Fe dwarfs the $14.5 billion he spent buying preferred shares last year. And he didn’t ask for a discount this time round, despite the railroad’s strong performance. He paid a 31.5% premium from its close, valuing Burlington at 18x the expected earnings in 2010. Union Pacific and CSX both trade around 13x 2010 earnings.
Buffett says he’s betting on the economy. And judging by the performance this year of the Dow Jones Transportation Index, he’s not the only one: The Transports are now 27% higher than at the start of the decade. The iron horse might not be sexy, but for today, at least, it’s a winner