Burlington Jumps on Buffett Buy

Burlington Northern Santa Fe Corporation [[BNI]] shares moved sharply higher after billionaire investor Warren Buffett’s Berkshire Hathaway purchased 4.3 million shares ahead of earnings. The move represents a vote of confidence on the part of the legendary investor and puts the investor’s total stake at more than 20 percent of the nation’s second largest railroad.

It is no secret that Burlington Northern is cheap with a price-earnings to growth ratio of just 0.81, indicating that the stock is undervalued given its growth rates. The stock also generates strong levered free cash flows of $1.52 billion with relatively low debt, making it a clearly Buffett-worthy investment. Finally, investors are also able to get some downside protection from a 2.5 percent dividend yield.

Investors looking to gain exposure to the upside of Burlington Northern without putting as much capital at risk may want to consider long-term options called LEAPS. Currently, investors can purchase the right to 100 shares anytime during the next 359 days, at $65 per share, for just $1,050 down now. This compares to $6,500 required to buy the underlying stock. The downside is the $75.50 breakeven point.

See “Using LEAPS As a Stock Substitute” for more information on this strategy or check out our Tools & Products for more ways to profit from LEAPS options.

 Email This Story
Join LEAPSInvestor.com