Last year, Berkshire Hathaway bought out the remaining shares of the U.S. railway Burlington Northern. It was seen as a vote of confidence in both the sector and its importance to the U.S. economic recovery. But is the transportation exchange traded fund (ETF) backing that up?
It turns out that Buffett’s insight into the nature of the economy and the rail industry proved to be right on track after his $27 billion buyout. Eugene Bukoveczky for Investopedia reports that the railway companies tanked hard with the rest of the economy in the recession, but the rebound in shipments so far this year has proved to be much stronger than expected. [Why Transportation Is Crucial to the Recovery.]
The U.S. economy is on the mend, and while the chances that this momentum will carry forward for the next couple of quarters is enough of a reason to be a buyer of the railways at this juncture, there are also sound arguments to be long the sector in the long run:
- First-quarter earnings numbers were stellar
- Carloads are on the rise
- Volumes of all types of goods saw healthy gains
It’s a sign that things are moving in the right direction. Will it continue? Only time will tell. You can ride the rails with one ETF; have your buy and sell strategy firmly in place before you dabble.
For more stories about transportation, visit our IYT category.
- iShares Dow Jones Transportation Average (NYSEArca: IYT) This is a play on this cyclical sector, providing exposure to package carriers, freight carriers and airliners.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.