To say the bears on Wall Street have gained some momentum in late November 2007 would be an understatement.
The consensus now argues that U.S. GDP growth has slowed substantially, with growth likely to remain sub-par through at least June 2008, and the Dow's 1,400-point drop in about a month reflecting that consensus.
Nearly every sector looks vulnerable. Still, some sectors are faring reasonably well. The rails are one, and among the rails, Burlington Northern (NYSE: BNI) is worth an evaluation.
For nearly 30 years, the rails -- long neglected in the United States -- were considered passé. Then the globalization era dawned, along with its exports and demand for agricultural products and coal. Add intermodal shipments and a price of oil that's basically risen for ten years and the results is - the rails are back.
With 32,000 miles of track in the western U.S. and two Canadian provinces, Burlington Northern accounts for about 45% of the west's traffic and about 23% of U.S. rail traffic.
Analysts see 2008 revenue growth of about 7-9%, down from double-digit growth earlier this decade, but still healthy. Margins should remain solid, with modest pricing power. The Reuters F2007/F2008 EPS consensus estimates for BNI are $5.21/$5.90.
Even better: Like the three other major U.S. railroads, BNI is in a relative sweet spot until the United States determines its energy policy for the 21st century. Investors/readers will carefully note that the value Wall Street attaches to rail stocks pretty much mirrors the price of oil.
That's because Wall Street knows that if the price of oil, currently high, moves to ridiculous levels, there's not much else that can move goods around the country if trucks can't cost-effectively do so, except the rails. It's not like Europe, where they move goods 200 kilometers here, 80 kilometers there; in the U.S., it's more like 1,000 miles (or longer), which, in the era of elevated energy prices, is good news for BNI.
The First Call mean rating for BNI is: Buy [17 firms]. Mean 2008 target: $94.30 [high: $105, low: $86].
Stock Analysis: Burlington Northern is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from BNI's shares. Appropriate Sell / Stop Loss for the shares in this company could be $56.
