Warren Buffett likes Trains

Berkshire Hathaway announced plans to buy the remaining 77% of Burlington Northern Sante Fe (BNI) that it doesn’t already own. That will bring the total value of the company to $34 billion dollars. Berkshire also has a 2% stake in another railroad, Union Pacific Corp (UNP).

Is this deja vu all over again where we could see a 1800’s Robber Baron railroad tycoon like Jay Gould? Given Mr. Buffet’s age and wealth ($40 billion and counting) that is highly unlikely but only time will tell. It does make you wonder what Warren is up to though.

Once upon a time railroads were the backbone of this nation and every other industrialized country. Trains were the most efficient means of transporting goods from producers to consumers. In many cases railways are still the most efficient and cost-effective means of transportation around the world.

The dark side of me wants to think maybe Mr. Buffett secretly harbors a model train fetish that was not fulfilled in childhood. Big boys will have big toys. The more rational side of me has to ask – what is it that rich people want more of?

Money immediately comes to mind. And in my opinion Warren is rolling snake eyes with this latest purchase. Next year may very well be the last year we will see oil priced under $100 per barrel with any regularity.

Our country nor economy is in a position to weather such an event although everyone knew the day was coming. Warren is preparing.

During my years of working in the manufacturing sector it has always been a fact that shipping by rail is much cheaper than trucking. Just one little thing stands in the way and that’s the customer. Most companies prefer just in time deliveries so they can cut inventory and warehousing costs. 

Over the next decade many things will change with regards to energy and how we use it. More people will ride trains and more goods will be shipped by trains. No more will Big Trucks be allowed to burn millions of gallons of diesel and spew tons of carbon monoxide into the atmosphere while the over-worked driver is taking a much needed rest break. 

Not that they are in abundance anymore but manufacturers and their suppliers won’t have the luxury of just in time deliveries unless they invest more  in developing a great logistics program. Could Warren be thinking of this?

Bill Gates jumped the gun with ethanol three years ago and saw much of his investment go down the toilet. Don’t fret, it was not much - relatively speaking - and he will probably make out just fine. His strategy was spot on but his investment choice (PEIX) wasn’t very good.

I think that Warren thinks what T. Boone Pickens and Matt Simmons have been thinking all along; Oil production per capita peaked long ago. It will only get a lot harder and much, much more expensive to find and produce.

My little ethanol stock (BIOF) is looking better all the time. Just wish Bill Gates was listening.

 

Online Trading Brokers

Choosing a broker for online trading may seem daunting when you first dive into it. It can be but things have changed a lot in the 10 years I’ve been trading online. My first broker was TD Waterhouse. It cost about $23 bucks to buy a stock with them back then. Wow!

Before long I had three online brokers – Scottrade, Ameritrade, and TD Waterhouse. Since then TDWH and Ameritrade have merged and they still offer the banking option. That is nice because it’s easy to just write a check for some cash instead of paying the wire transfer fees or waiting for the money.

There really is no reason to have more than one broker if you are just starting out. That’s plenty in fact and saves some headaches come tax time.

My reasoning for two brokers was one account would be for long term holdings and the other would be a trading account.  That did work for a while but doesn’t apply so much anymore. The account with the most cash gets used.

Both of the above online brokers are good and I’ve never had any problems at all. There are many more nowadays that are cheaper and probably just as good. Do a little research and open up an account. If you don’t like them you can always transfer your holdings or funds to another broker.

 

Online Trading Spotlight

Today we will take a look at the second stock I promised called BioFuels (BIOF). This is a fairly new company that built and operates two new corn ethanol plants in the Midwest. I started a position back in September.

There are 25.2 millions shares outstanding on this one. That’s an increase of about 10 millions shares since a year ago. The largest two shareholders own over 13M shares combined and both of them are Hedge Funds.

The stock was beaten down badly during the recent market melt-down. Like many others in the sector, bankruptcy seemed imminent for several months.

More recently the company stated they have reached an agreement with their lenders and near term bankruptcy fears were put to rest.

This is a speculative stock to say the least but I am of the opinion that ethanol stocks will soon again be the darling of Wall Street. I say this because I expected the price of oil to stabilize at $70-80 short-term and be higher by Spring.

Hedge Funds usually scare the bejesus out of me and I turn and run for the hills. This stock is different in that David Einhorn from *Greenlight Capital is on the Board of Directors of BIOF. Interesting. Looks good to me near the 50-day MA.

The price of oil will drop this week to the 50-day MA. That’s good for the economy and for frugal traders who want to scoop up some sector shares that are on sale. 

*Greenlight Capital is a Hedge Fund managed by David Einhorn.

Airline Stocks Anyone

This week one of the talking heads on television proclaimed, “Short the Airline Stocks”. I like it when they do this because; a) the stocks usually sell-off rather quickly and, b) the talking heads on television are usually wrong.

 

This presents an opportunity for those looking to open a position in the targeted sector or add to an existing portfolio. 

 

I already own stock in ExpressJet Holdings (XJT). This is the old Continental Express and the company did a reverse split last year so there is only 15.6 million shares outstanding. I love low float stocks. The company has also been buying back shares this year. Charts courtesy of Stockcharts.com which is one of the best charting services.

Right now the price is sitting on the 50-day moving average. It has a long way to fall to reach the 200-day moving average so this is definitely a concern.

 

It has been trading pretty much in sync with the Dow recently. If I were opening a new position I would make sure the $3.00 area holds for a couple of days and wait for the Dow to pop back over 10K. Nah, if it were me I would probably buy now but waiting would be the smart thing to do. Here’s the Dow:

For me XJT will be a long term holding. A sell or merger is likely in this company’s future and it certainly looks to be worth more than $5 bucks per share.

The next stock up is my favorite out of the two. I’ll post it tomorrow and try to give a little more technical info. As you will see, I like beaten down stocks that trade under $5 the most.

Introduction

I have been trading online since 1999. In hindsight that was a very good year to start because I was trading primarily Oil & Gas stocks and they were on a fire sale. The price of oil had dropped down to $16 dollars that January. 

On a trip home from New Mexico to Louisiana we stopped for gas near Amarillo and to my surprise a small bottle of water cost more than a gallon of gas! Having previously worked in the oilfield I knew this situation would not last very long. 

For the next six months I read as much as possible about online trading and researched brokers. The first stock I bought was WEL @ .38 cents a share. Sold it at .75 and felt pretty good about myself. The very next trade I bought RRC at 1.50 which turned out to be the all time low for that stock. Last year it traded over $70 per share but I sold long ago just under 10.

Those examples were partly beginners luck but they also represent many hours of research and set the foundation for my future trading. All has not been rosy however because I almost lost my shirt trading Emini futures. Now I'm back to trading strictly stocks and will post a couple of my holdings shortly.