Buffett Makes a Bullish Bet

By the tickerspy.com Staff

Warren Buffett's extremely active 2008 has continued.

After high-profile investments in Goldman Sachs (NYSE: GS - News) and GE (NYSE: GE - News), Buffett made a lower-profile move last week when a unit of his company, Berkshire Hathaway (NYSE: BRK-A - News, BRK-B - News), sold puts in railroad Burlington Northern Santa Fe (NYSE: BNI - News), according to filings with the SEC.

The puts have strike prices of $77 and $80 and expire in December. By selling the puts, Berkshire has pocketed a premium and is obligated to purchase Burlington Northern at $80 and $77 if the stock is trading below those prices on the day the option expires. Essentially, Buffett is betting that Burlington Northern is unlikely to drop below around $71, his effective cost basis if the $77 puts are exercised. (His cost basis on the $80 puts is around $73).

The bottom line is that Buffett appears to be maintaining his bullish view of railroads, a view that he has held since early 2007 when he first disclosed investments in the sector.

Looking at Buffett's holdings from the start of Q3, Burlington Northern is joined by the other two railroads he has been investing in: Norfolk Southern (NYSE: NSC - News) and Union Pacific (NYSE: UNP - News).

Among Buffett's end-of-Q2 holdings, these railroads have been among the laggards so far. Rebounding financials have done best since mid-summer, including Bank of America (NYSE: BAC - News), U.S. Bancorp (NYSE: USB - News), Wells Fargo & Company (NYSE: WFC - News), and SunTrust Banks (NYSE: STI - News).

Looking at tickerspy.com's graph charting the performance of Berkshire's end-of-Q2 holdings during Q3, it's clear that Buffett's ability to stick with the financials that are most likely to weather the storm has served him well. His recent bullish bet on railroads bears watching, though.

However, investors won't be sure of where Buffett stands now until next month, when the deadline for Q3 filings hits.

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