American Express Company (AXP), Mastercard Inc (MA): You Can’t Pay Credit Without Paying Buffett

The U.S. freight rail industry is dominated by four superpowers that control more than 90% of the market: CSX and Norfolk Southern in the east, and Union Pacific and Burlington Northern Santa Fe (fully owned by Buffett through Berkshire) in the west. The future of the U.S. freight industry is tied to the growth of the country. More people mean more goods transported, and the freight industry is well positioned, as it’s more fuel-efficient than trucking. A freight train can move one ton of freight over 450 miles on a single gallon of fuel. The fuel efficiency of freight was one of Buffett’s primary reasons for completing his stake in BNSF.

Freight rail companies possess strong competitive advantages. The heavy capital investment required to build railroads discourages competition, and regulations prevent railroads from being built side by side. Freight rail companies are not mutually exclusive, either. There are lots of goods that need to be transported from different places across the country. A map of freight rail lines shows the companies already coexist:

Buying the key players in a concentrated industry is more focused than an ETF and keeps you from having positions in industry laggards. There’s a Buffett-like simplicity in the approach, and it also allows you to weight positions according to your convictions rather than accepting an ETF’s allocation. When evaluating an investment, Buffett always ask himself a simple question: Are more people going to be using or buying this good or service in the future? When it comes to credit card payments and freight rail, I’m guessing he would say yes.

The article You Can’t Pay Credit Without Paying Buffett originally appeared on Fool.com and is written by Jake Keator.

Jake Keator always bought the rails in Monopoly but has no position in any stocks mentioned. The Motley Fool recommends American Express, Berkshire Hathaway, MasterCard, and Visa and owns shares of Berkshire Hathaway and MasterCard.

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