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Catching the Wabtec Train

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If Mr. Buffett's hunch about the railroads are correct then increased cash flow should lead to reinvestment into the business in the form of maintenance, upgrades and new locomotives.

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"Well, train, train, take me on out of this town
Train, train, Lord, take me on out of this town
Well, that woman I'm in love with, Lord, she's Memphis bound"

-Blackfoot

Now that ones goes back a bit - being a HUGE Southern Rock fan the random
appearances of The Road Ducks at The Pub in Georgetown University's Healy Hall was always a big night. The Ducks covered Skynyrd tunes better than any band I had ever seen but their rendition of Blackfoot's Train Train was off the charts. So it was with great nostalgia and glee that on my journey home last evening I heard Blackfoot's classic tune while flipping stations between innings of the Yankee game.

It all made sense this morning. While doing some homework for our show Fast Money I saw that Berkshire Hathaway reported an additional purchase of 1.62 mln shares of Burlington Northern (BNI). Warren and the gang now own about 40.6M shares of the Fort Worth, Texas based railroad.

But although BNI trading in the low $80's is still well off their 52 week high of $95.47 made earlier this spring, I'm still not convinced that the rails are the play. But rail exposure makes sense to me so let's go downstream a bit. Our journey will lead us to Wabtec (WAB). Formed in 1999 when Westinghouse Air Brake Company merged with MotivePower Industries, Wabtec, according to the company's website, "manufactures a broad range of products for locomotives, freight cars and passenger transit vehicles. The company also builds new locomotives up to 4,000 horsepower and provides aftermarket services. If Mr. Buffett's hunch about the railroads are correct then increased cash flow should lead to reinvestment into the business in the form of maintenance, upgrades and new locomotives.

Wabtec just reported its 2nd quarter EPS coming in at $0.57 versus consensus of $0.54. They went on to say that expected 2007 sales growth will be between 16-18% versus prior guidance of 12-14%. This time last year Wabtec was trading around $25 and with the stock currently trading around $38.50 I am expecting a bit of a pull back. However, Wabtec makes sense on a number of different levels especially if the Oracle of Omaha has it right with his railroad play. So let's put Wabtec on our stocks to watch list. If this rail play works out for us, forget about Warren Buffett, we will all have Blackfoot to thank!

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