Multiply Shale Profits with the New Rail Boom

“As long as more goods move from place to place in this country, rails are going to get their share, and it should be a very profitable business,” says the investably infallible Warren Buffett.

Rail has “real economic advantages,” he says.

We agree.

America’s energy boom has provided the country with countless windfalls: cheaper feedstock prices for manufacturers, lower residential energy prices, an uptick in energy jobs, a profitable environment for U.S. refiners and more!

But one of the most impressive rallies we saw was in rail…

Transporting crude by rail (CBR) turned out to be the saving grace that “stranded” oil patches like North Dakota’s Bakken needed to survive. Without underlying oil infrastructure, these booming shale zones turned to the “Rockefeller” secret: rail cars!

So why all of the enthusiasm from Buffett’s side?

Well, for starters, Buffett has made a pretty penny since picking up Burlington Northern Santa Fe (BNSF) railroad a few years back. Back then, the Oracle of Omaha likely saw the writing on the wall (or got one of those patented whispered stock tips) that with America’s energy boom railroads were about to cash in.

Flash-forward a few years and it turns out Mr. Buffett was right, again. Railroads have been making a mint transporting goods to and from U.S. energy hot spots.

Carrying sand or supplies to oil patches and carrying oil away turned out to be a winning scenario for rail players. Indeed, we’ve been watching some of the best rail plays since 2013 and we’ve seen a substantial run-up:

A Run Up in U.S. Rail Plays

Add it all up and we’re seeing an average gain of 29%. Nothing to sniff at for an eight-month run — especially from the “boring” rail sector.

But in the coming years, things could get even better for some of these vital rail plays.

“They’re going to change rail cars, obviously,” Buffett says. “The oil from the Bakken and from the Eagle Ford (as well) have turned out to be more volatile than people anticipated. And that’s going to require a new kind of tank car.”

Again, if you were watching Buffett’s interview on CNBC, you would have felt a palpable excitement and certainty in his voice.

Not only does he love the future of rail, he loves the fact that rail cars need an overhaul.

Buffett’s Berkshire Hathaway Inc. owns the Marmon Group — a purveyor of transportation services and engineered products. In other words, Marmon sells rail cars. So Buffett has a horse in this race as new rail cars are needed.

Marmon Group is a private company — much like Buffett’s BNSF. So there’s no way to play those stocks directly.

However, taking a look at the names above, there IS a standout. Trinity Industries (TRN:NYSE) is up 95% since we first published our Rockefeller Secret report. A fantastic run-up.

But if Buffett’s excitement over new rail cars is warranted, there’s even more reason to like Trinity. As a maker of oil tank cars, Trinity could be the best market-based pure play in the rail car sector.

All aboard the rail boom!

Keep your boots muddy,

Matt Insley
for The Daily Reckoning

P.S. Thanks to the ongoing U.S. energy boom, there are plenty of great investment ideas out there. You just need to know where to look. Readers of today’s Daily Resource Hunter get regular updates with the greatest information on how to play the US oil bonanza currently minting millionaires. Don’t wait another day. Sign up for the FREE Daily Resource Hunter, right away.

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