Time was – not long ago – the railroads were the darlings of Wall Street. Extraordinary demand for commodities from emerging markets and strong international trade increased demand for rail transport. But then came the winds of September/October 2008: a financial crisis and the ensuing global recession stopped both commodity demand and trade nearly cold, and Wall Street soon soured on the railroads as well, including Burlington Northern Santa Fe (NYSE: BNI). The Street drove UNP's shares down to about $50 per share from over $114 in less than eight months. Warranted? Hardly.
True, Burlington Northern is vulnerable to continued choppiness in the grain, long-haul coal, and intermodal sectors, but the view from here argues a global economic recovery beginning in the second half of 2009 will serve as a nice tailwind for BNI. Institutional investors are already anticipating this, and have been adding to their BNI positions, with the company's shares rising more than 20% since recording a low in March. Hence, for investors who can tolerate moderate risk, now would be a good time to 'stay in pace with the pack' if not 'get ahead of the pack' with BNI. The First Call F2009 / F2010 EPS estimates for BNI are $5.14 / $5.77.
Stock Analysis: Burlington Northern is a moderate-risk stock. Consider buying a 25% position in BNI now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your BNI position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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