Warren Buffett’s Shareholder Letter Highlights the Value of This Top TSX Stock

Warren Buffett and Bill Gates like railroads.

That much many investors already know. Warren Buffett proudly talks about his ownership stake in Burlington Northern Santa Fe in every shareholder letter. Bill Gates is the largest owner of Canadian National Railway (TSX:CNR)(NYSE:CNI) via an endowment fund run by Cascadia Investments.

However, investors shouldn’t take this for granted. Buffett’s typical comments about his awesome businesses are often overlooked by investors reading his letter.

So, let’s take a deeper look at Buffett’s comments from his recent annual letter to glean what the future may hold for railroads.

Railroads a “forever” business

Buffett likes to own businesses over very long periods of time. His investment time horizon? Forever.

Similarly, Bill Gates’s endowment fund has an investment time horizon intended to be generations long.

So, for these investors, finding companies like CN that have the kind of staying power they’re looking for isn’t easy. Indeed, finding companies able to withstand decades (or even centuries) of economic turmoil, crises, and market crashes is hard to do. However, railroads have fit the bill for both iconic businessmen.

Buffett’s shareholder letter highlights: “The history of American railroads is fascinating. After 150 years or so of frenzied construction, skullduggery, overbuilding, bankruptcies, reorganizations and mergers, the railroad industry finally emerged a few decades ago as mature and rationalized.”

I’d have to agree. This sector is one that has consolidated to its current state. As such, existing players have an outsized amount of market power relative to other sectors.

Size matters

For Buffett, size matters — especially when it comes to railroads.

Here’s another excerpt from Berkshire’s annual report. “Let’s look first at BNSF. Your railroad carries about 15% of all non-local ton-miles (a ton of freight moved one mile) of goods that move in the United States, whether by rail, truck, pipeline, barge or aircraft. By a significant margin, BNSF’s loads top those of any other carrier.”

Here’s where I think CN has tremendous value. It’s the largest railroad in Canada, with about twice the market capitalization of its peer, CP Rail.

In Canada, CN really is the go-to railroad to own for large-cap investors. Canada operates in a duopoly, and as such, these railroads are powerhouses for long-term cash-flow growth.

CN is my top pick in the Canadian railroad sector right now, and I think investors like Buffett and Gates are thinking the same way, in terms of picking the largest and highest-quality railroads as long-term holdings.

Indeed, investors should heed Buffett’s advice in his shareholder letter and focus on size and quality right now. Railroads are a good place to start.

Like this top Warren Buffett-approved pick? Here are some other picks we like at the Motley Fool that are under $50.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada‘s market-beating team has just released a brand-new FREE report revealing 5 “dirt cheap” stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don’t miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

More reading

  • 3 Dividend Stocks That Deserve a Spot in Your Portfolio
  • Is it Too Late to Buy These 2 Popular Dividend-Growth Stocks?
  • How to Turn a $30,000 TFSA Into $990,000 for Retirement
  • How to Turn a $10,000 RRSP Into $475,000 in 25 Years
  • RRSP Investors: 2 Top TSX Stocks I’d Buy Now and Hold for 20 Years

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.

The post Warren Buffett’s Shareholder Letter Highlights the Value of This Top TSX Stock appeared first on The Motley Fool Canada.

Trade the News!

Seize the market opportunities!
Start trading with a reliable broker.
Let an expert help you get started!

The Motley Fool Canada


Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Trade the News!

Seize the market opportunities today! Start trading with a safe and reliable broker.

Let's help you get started!