On the 2024 Berkshire Hathaway assembly, Warren Buffett said that considered one of its companies would nonetheless be going 100 years from now. The subsidiary is Burlington Northern Santa Fe – its freight railroad.

That’s about as long run because it will get. And whereas traders can’t purchase shares in BNSF instantly, I believe different US railroads – akin to CSX (NASDAQ:CSX) – seem like good shares to contemplate shopping for.

Buffett on railroads

Freight railroads like CSX transfer issues like chemical compounds, commodities, and client merchandise across the US. And Buffett’s in all probability proper in pondering this can nonetheless be occurring a century from now.

The one query is how and there’s a very good case for pondering will probably be by practice. Proper now, transferring freight by rail’s considerably cheaper than placing it on a truck – the primary different.

In line with CSX, a truck can transfer a ton of freight 134 miles utilizing a gallon of gas. Its trains, in contrast, can handle 506 miles on the similar price.

That provides rail an necessary benefit over trucking in relation to transferring freight. And railroads additionally take pleasure in a scarcity of direct competitors – every operator solely has one main rival in its area.

CSX, shares the Jap US with Norfolk Southern. And as Buffett notes, the fee and complication of constructing new rail infrastructure makes the emergence of latest rivals extremely unlikely.

This is the reason Buffett thinks BNSF’s a enterprise that may endure for one more century. And I believe the important thing elements of the Berkshire Hathaway CEO’s thesis apply simply as properly to different US railroads, together with CSX.

What are the dangers?

Not everybody sees issues this manner. Again in 2020, Cathie Wooden’s ARK Make investments printed a report saying it expects autonomous electrical vans to be taking market share from freight rails by 2025.

We haven’t reached 2025 but, however it’s truthful to say this hasn’t occurred, to date. Nonetheless, the aggressive panorama’s been shifting. Regardless of their price benefit, railroads have been shedding market share to vans over the past 10 years. The reason being service has been poor – centered on margins as an alternative of shoppers. 

The Floor Transportation Board’s additionally launched reciprocal switching guidelines. Consequently, if a rail operator falls beneath sure requirements, they now threat shedding their enterprise to a competitor.

Meaning the likes of CSX are going to must concentrate on bettering their service to prospects. And this may come on the expense of revenue margins – which have traditionally been excellent. 

That is clearly a threat, however I believe it may be constructive. Bettering service to keep away from competitors from different railroads might properly put CSX ready to reclaim market share misplaced to vans.

Why I’ve been shopping for

With the appointment of Joe Hinrichs – a former Ford govt – CSX has already made a giant transfer in direction of being attentive to the wants of its prospects. I believe that is very constructive for the close to time period.

I additionally assume the inventory appears like good worth and have been shopping for it. A price-to-earnings (P/E) ratio of 18 for a corporation in an trade Buffett thinks will nonetheless be going 100 years from now appears like a very good deal to me.