RealMoney's Take on the Buffett Buy

Don Dion revisited the deal and pondered the implications for the transports and related ETFs:

Buffett Rescues the Transports -- for Now
By Don Dion
11:20 a.m. EST

Monday's close of 3599.84 for the Dow Jones Transportation Index was the lowest closing value since Aug. 17 of this year. The 3600 level has formed a support line since August, which has been tested four times, including yesterday.

Things were looking less than rosy for the index, which had been diverging from the Dow Jones Industrial Average. Contra the transports, the industrials had been the strongest of the major indices. The developing question was whether the Dow would turn down or the transports move up.

Thanks to Warren Buffett, we have an answer.

Buffett's $34 billion purchase of Burlington Northern Santa Fe sent the transports up 4.5% at the open and the iShares Dow Jones U.S. Transportation Index(IYT) up 4.7%. BNI is the largest holding in IYT, at 11.38% as of yesterday's close.

Shares of BNI gained more than 28%, and with the deal valued at $100 per share, shares only have about 3% more to go. BNI's advance accounts for nearly 3% of IYT's gain, and the halo effect lifted other railroads such as Union Pacific(UNP) and CSX(CSX) by 5.5% and 6.5% in early trading. Those two firms account for 8.12% and 4.92%, respectively, of IYT's assets.

FedEx(FDX), which makes up 10.72% of the index, was up 1.4% early, and UPS(UPS), 8.37% of the index, had a small gain of 0.3%.

I would not buy shares of IYT here until there's a follow-through. While today's move could hold and the technical picture has improved, there needs to be broad support for transportation stocks. A Buffett-fueled rise in the rail sector is not enough.

Tim Melvin examines the rail suppliers for possible investment themes:

Rails?
By Tim Melvin
12:26 p.m. EST

If Warren is right about the future of the economy in general and railroads in particular, it is time to start looking into the companies that supply equipment and rails to the industry. The nation's railroads need to be repaired and rebuilt to handle the type of traffic he is talking about. Companies like LB Foster (FSTR) are going to be worth watching here for an entry point. There will be increased demand for locomotives and freight cars as well. This makes companies like Trinity (TRN) and Greenbrier (GBX) worthy of investigation.

As the talking heads on the television just stated there is also an implied bullish bet on coal involved when you bet on the railroads.

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