This post is part of a series featuring bargain stocks that are worth a look now. See more Cheap Stocks.
Maybe a railroad stock doesn't exactly seem like the cutting edge in investments. In fact, it might even strike you as old-timey. Fair enough -- but if you check out the year-to-date performance of Burlington Northern Santa Fe (NYSE: BNI), it's hard not to be impressed. At the end of November, the stock was down just 8% for 2008, compared to a loss of 40% for the broader S&P 500 Index (SPX).
The Texas-based freight firm transports everything from lumber and coal products to canned goods and oats. While you may have a perception of trains as pollution-spewing dinosaurs, BNI happily defies those stereotypes. Not only is the company adding new rail lines, it has also recently won accolades for its environmentally friendly practices. (Environmentally friendly for a railroad, of course -- I won't kid you by saying these locomotives run on rainbows and happy thoughts.)
On the fundamental front, BNI reported third-quarter earnings in late October that crushed analysts' expectations, and offered a rosy forecast for the fourth quarter. CEO Matt Rose said he's optimistic about his company's future, despite macroeconomic uncertainty. A pullback in corporate spending could actually benefit BNI, says Rose, because it's cheaper to transport goods by rail than by truck. "As the economy slows down, customers are going to be paying a lot more attention to cost," noted the chief executive.
In fact, this little-stock-that-could has won Wall Street's ultimate seal of approval, as Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) recently upped its stake in the railroad concern. Additionally, Berkshire reported selling put options on some of its BNI shares, which suggests that Buffett's firm sees solid technical support in place for the security. (So do I, but I thought Warren's opinion merited first mention.)
On the charts, BNI recently caught a boost from its rising 60-month moving average, which neatly contained the stock's November lows. If selling pressure smacks the market again, the stock can also rely upon support at the $65 level. This region contained the equity's 2006 lows, and could act as a buffer against any further losses in the shares.
Despite its strong fundamental and technical position, analysts have been quick to hate on BNI. According to Zacks, 70% of brokerage firms have slapped a skeptical Hold rating on the equity. If the stock continues its pattern of outperforming the broader market, this curmudgeonly group could be forced to dole out some upgrades.
In short, you might want to hop on this investment train while it's still trading at a discount. The stock's late-November price/earnings ratio of 13.3 is a nice discount to its five-year average p/e of 19.4.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.