The Financial Times led off one headline column this week thundering:

“The world economy will this year suffer its worst performance for more than 60 years with a serious risk that 50 million people will lose their jobs, international organizations warned yesterday.”

The consensus has gelled. Now it’s just a matter of who can come up with more staggering figures. The IMF says global output will fall for the first time since the World War II. And 50 million are a lot of people.

Where to invest is the question. In pockets of strength is one answer. Where might these be?

Warren Buffett likes railroads and recently upped his stake in Burlington Northern. He now owns 22% of the company.

The railroads are interesting because they have put up increases in earnings despite declines in freight volume. Union Pacific (NYSE:UNP) reported a 35% rise in fourth-quarter earnings, despite a 12% decline in carloads. CSX (NYSE:CSX) reported a 16% gain in earnings. Burlington, Buffett’s darling, reported a 19% increase. Canadian National Railway chipped in an 11% increase.

A good chunk of those increases is due to a lag effect in fuel surcharges. When those fuel surcharges come down, as the price of oil is now much lower, so too will some of those earnings. But not all.

In fact, railroad executives have been pretty confident in their ability to continue to raise prices on their customers. Railroads have to compete with truck and other means of transport in many cases. The railroads say that even with the increases, it’s cheaper to ship by rail than it was 28 years ago — adjusted for inflation.

Railroads are also pretty green. One rail car can carry freight 436 miles on one gallon of fuel, according to the American Short Line and Regional Railroad Association. And it emits far fewer carbon emissions than a truck, at a time when that could be very important.

Even so, the freight volume falloff has investors worried. Union Pacific chief James Young said that freight volumes fell 18% in the first three weeks of January. In some areas, the drop-off is really something — like the 60% drop in auto-related freight Young cited.

Whew, you see stuff like that and you think the world must really be coming apart at the seams. Still, Buffett is a buyer, and the prices might discount a lot of bad news already. Many of the big railroads trade for single-digit price-to-earnings ratios, and the industry as a whole goes for about 9 times earnings.

Buffett isn’t the only one taking a look at railroads. Donald Coxe, another investor I respect, thinks it is also a good time to be looking at the railroad stocks. “They benefit from lower energy costs,” he writes in a recent note to clients, “which may offset a significant percentage of the cutback in top-line revenues during the recession. Coming out the other side, they should be core investments.”

David Winters, of Wintergreen Advisers and another investor with a good long-term record, also likes railroads. He calls them “unduplicable franchises” protected by huge costs of entry.

In addition to railroads, there is timberland. As I’ve noted before, timberland values have held up well in this mess. The Wall Street Journal recently ran a piece on timberland and included this chart.

How can timberland values continue to climb when nearly everything else is going to pot? The WSJ quotes Jeremy Grantham of GMO: “As long as the sun shines, the trees will grow. Timber will never be an orphan.” Timberland appreciation for the past decade was 4.1%, versus a negative 3.8% for the S&P 500, according to the WSJ. That kind of long-term appreciation has always been timberland’s great appeal.

The other great part about timberland is if timber prices are unfavorable, you just don’t harvest your trees. You let ’em grow. And their value increases anyway. “Trees keep growing 4% per year, no matter what happens to inflation, interest rates or market trends,” says Dennis Moon, quoted in the WSJ story. Moon is head of U.S. Trust’s group overseeing timberland. “You don’t have to cut them down this year if that doesn’t make sense.”

Source: Buffet’s Investing in Railroads in Early 2009

And the “Oracle of Omaha” isn’t done, yet.

Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) agreed to buy $5 billion in perpetual preferred Goldman shares that pay 10% interest. In addition, Berkshire receives warrants giving it the right to buy $5 billion worth of Goldman’s common shares at any time over the next five years at a price of $115 per share. The shares closed Tuesday at $125.05 and yesterday (Wednesday) at $133, up $7.95, or 6.36%, each.

“Goldman Sachs is an exceptional institution,” Buffett said in a statement. “It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”

Based on Tuesday’s closing price of $125.05, Buffett made an almost instantaneous paper profit of about $437 million on the warrants. With yesterday’s advance, that paper profit rose to $783 million.

Scott Roth, management partner at Severn River Capital Management, told Bloomberg News that by his calculations Buffett is buying the preferred stock for about $3.2 billion, after accounting for the warrants. Roth worked at Goldman more than a decade ago and is betting the stock won’t drop.

“As usual Mr. Buffett has struck an extremely attractive deal,” Guy Moszkowski, an analyst at Merrill Lynch & Co. Inc. (MER), wrote in a note to clients. “He is, we believe, getting a better deal than he did in 1987 when he bought a Salomon Bros. convertible with a 9% yield, for a company that is considerably more attractive than the ‘87 Salomon.”

Goldman Sachs, which has booked roughly $5 billion in losses and write-downs, and which has lost about 40% of its market value this year, is benefiting, too. In addition to Berkshire’s cash infusion, the firm gets a vote of confidence from Wall Street’s greatest legend at a time of extreme uncertainty.

The collapse of The Bear Stearns Cos. Inc. and Lehman Bros. Holdings Inc. (OTC: LEHMQ), and the hurried sale of Merrill Lynch to Bank of America Corp. (BAC), sent shockwaves through the industry. And many investors, up until this point, were unsure of just how successful Goldman’s transition to a holding company would be.

Buffett is “getting very attractive terms, but Goldman is getting very attractive affirmation of their value from an investor with Warren’s stature,” Tom Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, which manages more than $3 billion, including Berkshire shares, told Bloomberg.

Goldman got an immediate lift in its share price, which rose 4% over the past two days, as investors and mutual funds mimicked Buffett’s strategy.

Buffet also gave a boost to the overall market, as he braved the treacherous terrain of financials.

The purchase “is a significant sign, as Mr. Buffett is of course known for making prudent, long-term investments in companies with good fundamentals and solid growth potential,” Sacha Tihanyi, a currency strategist at Scotia Capital told The Wall Street Journal. “The ‘Oracle of Omaha’ believes not only in Goldman, but also the industry’s prospects over the medium term.”

Jim Cramer Backs Buffett

In an article that appeared on the TheStreet.com, site director and co-founder Jim Cramer broke down both Buffett’s Goldman stake, as well as his recent bid for Constellation Energy Group Inc. (CEG).

“These investments are the first sign that someone, some grown-up, is coming in from the sidelines, not because he has been talked into something that he doesn’t want to do or understand – which has been the case in all of the other bank financings – but because he sees a delicious rate of return that will be hard to take away now that he has put his balance sheet to work, one of the last with any firepower to make a difference,” said Cramer.

Earlier this month Buffett’s MidAmerican Energy Holding Co. offered $4.7 billion, or $26.50 a share for Constellation. MidAmerican displaced Electricite de France SA (PINK: ECIFF), Europe’s biggest power producer as Constellation’s top shareholder Monday, after paying $1 billion in cash for a 19.9% stake.

Both Goldman and Constellation fit into the typical Buffett model of having strong management and well-established business models. But they’re facing problems that have transformed them into bargain-basement profit plays.

“It is more than ironic that [Buffett] came in after a multitude of articles that talked about how Goldman is worth far less than it was before it became a commercial bank, because the truth is that it is worth far more as a commercial bank because it can do more and have access to more capital and is safer,” Cramer said. “The press didn’t believe it because the press gets its information from the [short-sellers]. But Buffett did. Perhaps we should be thinking more like Buffett and less like the press.”

What Buffett’s Been Buying

According to a recent study, buying what Buffett has bought – even a month after his purchases – is a pathway to superior returns. In fact, over the past three years, this strategy has delivered double the return of the Standard & Poor’s 500 Index, according to research by professors at both American University and the University of Nevada at Las Vegas.

That means it’s well worth the time to revisit what Warren’s been up to.

In February, Berkshire took an 8.6% stake in Kraft Foods Inc. (KFT), becoming the foodmaker’s biggest shareholder. That was followed in March by the $4.5 billion purchase of Marmon Holdings Inc. In April, Buffett supplied Mars Inc. with $6.5 billion to help the candy company acquire Wrigley Jr. Co.

Last month, filings with the U.S. Securities Exchange Commission (SEC) shed more light on just what Berkshire was up to during the second quarter.

Prior to putting $3 Billion into Dow Chemical Co.’s (DOW) $15.4 billion takeover of Rohm & Haas Co. in July, Berkshire reduced its investments in Anheuser Busch Cos. (BUD) and Trane Inc., and added positions in NRG Energy Inc. (NRG), Ingersoll-Rand Co. Ltd (IR), and Sanofi-Aventis (ADR: SNY).

According to the SEC, Berkshire in June reduced its stake in Anheuser Busch to 13.85 million shares, less than half the 35.56 million shares it held as of March 31. Also in March, Berkshire dumped its 10.9 million shares of Trane Inc. That stake was valued at more than $500 million as of March 31.

After unloading in the spring, Buffett treated Berkshire Hathaway to a $4 billion shopping spree. By the end of the second quarter, Berkshire’s stake in French drugmaker Sanofi Aventis had shot up by 317,200 shares, to reach 3.9 million. Berkshire also added 5 million shares of Ingersoll-Rand, and announced new holdings in NRG Energy, the second-biggest power producer in Texas. Berkshire held 3.24 million NRG shares as of June 30.

Then, in a move that highlighted Buffett’s bullishness on railroad stocks, Berkshire doubled its stake in Union Pacific Corp. (UNP), taking its holdings from 4.45 million shares at the end of March to 8.91 million shares as of June 30.

But the acquisitions disclosed to the SEC were only a fraction of the $3.98 billion Berkshire spent on stocks in the April-June period.

Even if Buffett bought the shares at their highest second-quarter prices, which he almost certainly did not, the total cost would only have been about $260 million. That means more than $3.5 billion went into smaller amounts of unnamed stocks the company was not required to disclose.

At the year’s mid-point, Berkshire had $31.2 billion in cash, down from $44.3 billion at the end of 2007, Bloomberg News reported.

“It’s nice to have a lot of money, but you know, you don’t want to keep it around forever,” Buffett recently told Bloomberg. “I prefer buying things. Otherwise, it’s a little like saving sex for your old age.”

Source: Buffett’s Goldman Deal Has Big Benefits, but What Else is Berkshire Up To?

But contrarian investors should be wary of such ‘expert’ opinion. Floyd Brown in Investment U says: “Trucking is an integral part of our national goods transportation network. And because it’s tied so closely to our economy, it will also be one of the first sectors to see a turnaround.“

Floyd says savvy investors should follow Warren Buffett into undervalued transport stocks now…

Even Warren Buffett – the closest person America has to a modern day industrialist – has used the last few years to build an increasing stake in transportation stocks like Union Pacific (NYSE:UNP), Norfolk Southern (NYSE:NSC) and his biggest purchase by far, Burlington Northern Railroad (NYSE:BNI).

• BNI transports goods eastward from Pacific shipping ports, and commodities such as coal and corn around the Midwest over 32,000 miles of track in 28 states and Canada. It is currently trading at a forward PE of 14.
• Railroads are coming back into vogue as their economy and their cost effectiveness make them popular again. That’s why Warren Buffett took a $5 billion stake in the railroads.
• Trucking also deserves a look. YRC Worldwide (Nasdaq:YRCW) and Knight Transportation (NYSE:KNX) were hurt along with the rest of the sector with the spike in diesel costs this spring. With energy prices starting to settle down, the larger concern for trucking companies is the overall economy, as a continued slowdown will be just as costly.

Transportation Stocks – Calling All Contrarian Investors

For contrarian investors like myself, buying when the rest of the crowd isn’t in love with a particular sector or company is par for course, as is the case with transportation stocks. The secret is to find value that everyone else is missing…

For example, YRC Worldwide is trading in deep value territory at only 62% of book value. With revenue over $165 per share, this firm is selling at approximately 10% of its sales. The forward PE is only 11.

Commodity, oil and agricultural products all had a significant price increase this spring and summer as energy prices impacted profitability across the board. Many have already seen their prices crash downwards along with crude oil, and it remains to be seen whether this will continue.

While slowing with the U.S. economy, international development around the world will continue to be an engine of growth to drive production in multiple industries and there will always be a need to transport these products.

As the great leaders and businessmen of the 19th Century knew, markets can retreat, but after every retreat comes a new day of increased growth and higher market returns.

By investing like the great industrialists, we can follow their examples to great wealth. Build your fortune the same way as Vanderbilt and Buffett by investing in unloved and undervalued sectors like transportation…

Source: Follow the Great Industrialists to Incredible Wealth

Not even Warren Buffett was immune to the stock market’s rampant first-half gyrations, as Berkshire Hathaway Inc. notched its worst first half in 18 years, with the shares skidding more than 16%. But only a fool would count out the great Oracle of Omaha, who has spent the past several months restructuring his company’s portfolio and is now ready to come out swinging for the year’s second half.

As Money Morning’s Horacio Marquez noted in his most recent “Buy, Sell, or Hold” feature, Berkshire Hathaway has had a tough start for the year.

The company’s net earnings for the first half were $3.8 billion – a 33% decline from the $5.7 billion reported for the same period last year. But even though the second quarter was weak – especially by Buffett’s standards – it showed marked improvement from the first three months of the year.

Berkshire reported about $1.6 billion in unrealized losses from derivatives in the first quarter. But after warning that derivatives contracts will often “swing wildly,” the company posted $689 million in derivatives gains in the second quarter.

Berkshire’s revenue actually rose 10% to $30.09 billion for the quarter.

But that’s not enough for Buffett, who has set about restructuring his company’s holdings. In the past few months, Berkshire has reduced its investments in Anheuser Busch Cos. (NYSE:BUD) and Trane Inc., and added positions in NRG Energy Inc. (NYSE:NRG), Ingersoll-Rand Co. Ltd (NYSE:IR), and Sanofi-Aventis (ADR:SNY).

According to filings with the U.S. Securities Exchange Commission (SEC), Berkshire in June reduced its stake in Anheuser Busch to 13.85 million shares, less than half the 35.56 million shares it held as of March 31. It’s likely the company received a tidy sum for its shares, as earlier that month InBev SA (PINK: INBVF) offered $65 a share for the American icon. Buffett admits to bailing on the Bud brand before InBev raised its offer to $70 a share, but AB was trading at close to $62 a share on June 30, much higher than the $47 a share the company was valued at in late March.

Also in March, Berkshire dumped its 10.9 million shares of Trane Inc. That stake was valued at more than $500 million as of March 31.

After unloading in the spring, Buffett treated Berkshire Hathaway to a $4-billion shopping spree over the next several months. By the end of the second quarter, Berkshire’s stake in French drug maker Sanofi Aventis had shot up 317,200 shares to reach 3.9 million. Berkshire also added 5 million shares of Ingersoll-Rand, and announced new holdings in NRG Energy, the second-biggest power producer in Texas. Berkshire had 3.24 million NRG shares as of June 30.

Even more interesting, in a move that highlighted Buffett’s bullishness on railroad stocks, Berkshire doubled its stake in Union Pacific Corp. (NYSE:UNP), taking its holdings from 4.45 million shares at the end of March to 8.91 million shares as of June 30.

Last year, Buffett and Berkshire road the rails hard. Buffett made his first move on Burlington Northern Santa Fe Corp. (NYSE:BNI) last April, acquiring nearly 40 million shares – or close to 11% – of the railroad. He then moved on to snap up 10.5 million shares of Union Pacific Corp., and 6.4 million shares of Norfolk Southern Corp. (NYSE:NSC).

Later in August, Berkshire went shopping again, loading on an additional 3.3 million shares of Burlington and another 6,000 in September. But Buffett didn’t stop there: He added yet another 10,300 shares of Burlington over the two-week period ending Jan. 22, bringing Berkshire’s total stake in the company to 18.2%.

Berkshire’s second-quarter acquisitions, which were disclosed in an SEC filing last week, are only a fraction of the $3.98 billion Berkshire spent on stocks in the April-June period.

Even if Buffett bought the shares at their highest second-quarter prices, which he almost certainly did not, the total cost would only have been about $260 million. That means more than $3.5 billion went into smaller amounts of unnamed stocks the company was not required to disclose.

Where that money went is anybody’s guess, but Buffett indicated in a recent interview with CNBC that a portion of it went into one of two stocks: Wells Fargo & Co. (NYSE:WFC) or American Express Co. (NYSE:AXP).

Wells Fargo stock has plummeted 22% in the past year, while American Express is down more than 37% in that time. However there may be some clues as to which stock Buffett really believes will rebound in some earlier comments he made.

“We’ll say at American Express… they are experiencing credit deterioration and they’re experiencing it sort of in all segments,” Buffett said earlier on CNBC’s Squawk Box. “So they’re seeing the rich customers slow down in payments, slow down in purchases.

“And American Express can describe that rather than I,” he added, “but I pay a lot of attention to that sort of thing. And incidentally, it will get cured at some time in the future, but right now the situation is getting worse and I would say that I don’t see any early end to that.”

That assessment doesn’t seem particularly favorable, particularly compared with comments Buffett made with regards to Wells Fargo just a few months ago.

“Wells Fargo stock was down last year,” Buffett said, “I don’t think the intrinsic business value shrunk. In fact, I said I thought it probably increased a touch.”

Berkshire already owns considerable stakes in both companies.

Source: Buffett Reignites Berkshire Hathaway with a $4 Billion Spending Spree

 Three stocks just executed stocks splits in May — all of which should be part of your portfolio.

Petroleo Brasileiro (PBR: NYSE)

PBR engages in the exploration, development and production of oil, liquefied natural gas, and natural gas in Brazil. It’s quickly emerging as one of the world’s top oil and energy companies. Petrobras split 2- for- 1 on May 8.

Cleveland-Cliffs (CLF: NYSE)

CLF is a mining company that produces iron ore pellets and supplies metallurgical coal to the steelmaking industry in North America. So long as steel demand remains hot, shares of CLF will continue to rise. Cleveland-Cliffs split 2- for- 1 on May 16.

Union Pacific Corp. (UNP: NYSE)

With high gas prices crippling the trucking industry, Union Pacific’s 32,205 rail miles linking the Pacific and Gulf c oasts with the M idwestern and eastern United States offers a strong investment thesis. UNP shares split 2- for- 1 on May 29 .

Based on my experience with stock splits, all three will continue moving higher. I consider all three names strong buys at current levels.

Sincerely,

Bryan Bottarelli, Bottarelli Research

NEVER BEFORE REVEALED…

A Newspaper Reporter Making $15,000 Per Year Used These Secrets to Compile a $50 Million Net-Worth.

- Source: 60 Minutes

Next Week, You Could Make $35,000 in 10 Minutes.

Source: Three Bullish Plays 

I managed to pack in four barbecues (or “cookouts” to put it in American lingo) over the weekend – all pretty close to home – so not too much damage done. And with soaring gasoline and food prices contributing to a projected 3.6% rise in consumer prices this year, it might be the best way to go.

Gas prices obviously remain front-and-center of the news, so let’s check in and see how it’s affecting consumers on both sides of the Atlantic, plus an industry that is arguably getting hammered even harder.

National Average Gas Price

Following a daily march higher over the past three weeks, the current national average gas price per gallon sits at an ugly $3.93. But with gas in 11 US states already over $4 a gallon, this number is now more for headlines than anything else. Bottom line: It’s expensive!

Little wonder that AAA projected a drop in Memorial Day travelers this year – the first decline since 2002. Many have also scaled back their plans, due to rising gas prices. And MasterCard reported a 7% drop in gas sales in the week leading up to the holiday.

But it wasn’t just Americans feeling the pressure at the pump this weekend…

Truck JamLike in the US, Monday was also a holiday in Britain, with the long weekend giving Brits a similar chance to hit the road for a short break.

Trouble is, UK gas prices are 17% higher than this time last year, with diesel prices almost 30% higher. The national average is currently $1.14 a liter and $1.26 a liter respectively. In US terms, that’s about $10.16 and $11.23 per gallon.

You can see why 16% of respondents to an Automobile Association survey said they plan to use their cars less.

What bothers many Brits, though, is that about 60% of fuel costs go into the government’s coffers in taxes. And today, the nation’s truckers took their protest to the streets.

In a mass demonstration against high prices and the government’s planned 2 pence per liter fuel tax rise (set to come into effect in October, having been postponed from April), hundreds of truckers set off from various parts around the UK and conducted a “go-slow” along the motorways.

One convoy ended at London, where the truckers handed a petition to the government at Downing Street. The other convoy, starting from further afield, handed its petition to the Welsh Assembly in Cardiff because (ironically), the trip to London would have cost too much.

The underlying problem that the trucking industry faces today is certainly not exclusive to Britain, though. High fuel prices are hammering both British and American truckers. So could America see a similar backlash?

America’s Big Rigs Have Big ProblemsActually, it already has. You may remember some truckers driving their rigs to the Capitol in Washington, D.C. in early April to protest against high fuel prices and imploring Congress to provide some relief measures.

You can see why. While diesel prices are up 30% in Britain over the past year, the price has blasted 80% higher in the US – from $2.50 a gallon this time last year to $4.50 today, according to the New York Times.

When it costs $1,125 to fill up a 250-gallon fuel tank, that clearly crushes any kind of profit margin that trucking companies hope to generate.

In fact, the American Trucking Association says times are so tough today that during the first quarter, 935 companies with fleets of five trucks or more went out of business. That’s up an astonishing 143% from the 385 in Q1 2007 – and is the worst quarterly “bust rate” since 2001.

In total, 45,000 trucking vehicles have permanently pulled off America’s highways since early 2007, according to America’s Commercial Transportation Research.

The domino effect of this is far-reaching. Reduced profits can erode employee wages, decrease supplies of goods, and create more potential for failing companies. In turn, that can cause bankruptcy and dents GDP growth.

So is there a way to play these developments?

Hit The Road (The Railroad, That Is)In a desperate attempt to offset some of the costs, some trucking firms are turning to rail companies.

While trucks can only haul so much and are directly impacted by rising gasoline costs, rail companies can absorb soaring oil prices more easily, as they can haul more goods. A few of the biggest names in this area include:

Burlington Northern Sante Fe (NYSE: BNI) – a firm that Warren Buffett has invested heavily in… Union Pacific Corp (NYSE: UNP)… and CSX Corp (NYSE: CSX).

All three are also members of the Dow Jones Transportation Average (^DJT), which is a remarkable story itself…

Transports Bust The TrendRemarkably, despite the march in oil prices to over $130 a barrel, that hasn’t stopped the Dow Transports from surging, too.

This is a major reversal in the historical trend. Oil prices and the Dow Transports usually move in opposite directions – and you’d think that with fuel being the biggest expense for Transportation Index companies and high oil prices pressuring so many areas of the transportation sector, the index that represents these firms would also be under severe pressure.

Not so. The DJT is actually up 15% in 2008, and as my colleague Jim Stanton reported in his bi-weekly “Sector Watch” column last Monday (May 19), the index raced to an all-time high of 5,550.17 on the same day. Jim applied some technical analysis to the index – and how to play the next move profitably through the index’s ETF – so take a look.

With the index made up of airlines like American (NYSE: AMR), Continental (NYSE: CAL), JetBlue (Nasdaq: JBLU) and Southwest (NYSE: LUV), plus shipping companies FedEx (NYSE: FDX) and UPS (NYSE: UPS) – all of which are buckling under the weight of high oil and gas prices – economists are now hotly debating whether it’s throwing the market a curveball.

Traditionally seen as a sign of US economic strength and turnarounds, the fact that the index is soaring while consumers and the economy are struggling is a source of confusion.