Exxon announced today that it's buying XTO energy, a domestic producer of natural gas, in an all-stock deal valued at $31 billion. It includes the assumption of $10 billion in debt. This helps answer a question I've been wondering about for a while: How cheap is natural gas? Very cheap, apparently. This is good news, all around, I think because 1) The United States has large natural gas reserves, making it a viable domestic energy source 2) The low prices of natural gas will keep down winter heating costs 3) natural gas is clean-burning. Billionaire and energy invsetor T. Boone Pickens has been blathering on about the benefits of natural gas for a while. And yes, it's interesting that as oil has been rising, natural gas prices have remained low. I was waiting for a larger energy company to take advantage of this. I believe that Exxon's deal confirms the fact that natural gas is very cheap relative to oil and has room for substantial growth, especially if the U.S. can start promoting its use as a an alternative to oil. Below is the chart of Oil (Green), the S&P Index (blue), and red (natural gas) through September of this year, which shows how cheap natural gas had become relative to other assets. With natural still only trading around $5, I would expect there is plenty of room for natural gas to move up and still remain "cheap" relative to oil. The world appears to have plenty of natural gas. This deal, of course, lead to the natural auto-reflex analysis: It could spur more deal sin the energy sector, especially involving natural gas. The following stocks are some other classic natural gas-heavy plays which often come up in acquisition discussions: EOG Resources (EOG), Southwestern Energy (SWN), Anadarko Petroleum (APC), Devon Energy (DVN), and Chesapeake (CHK). I ran some quick stock screens in the energy sector. From a value position, below are some energy plays  to watch, with natural gas exposure: Noble Energy (NE). Noble is a contract driller for energy explorers. Well-run company with a operating margin of 56% and return on equity of 30%. P/E is 6. With gas and oil demand having been light, exploration companies have been under-investing in drilling. Ase the economy rebounds, it's likely that inventories will eventually tighten and reinitiate demand for drilling rigs. This stock is very cheap and it's probably a good time to accumulate. Pioneer Southwest (PSE): Energy limited partnership with oil and gas properties based in Texas. Forward P/E of 8. Like most partnerships, it pays out all of its income as a dividend. The current dividend is 9%.

When I launched this site I didn't think I'd be writing much about railroads. But Berkshire Hathaway's deal to buy Burlington Northern for $44B must be examined because it is Warren Buffett. When Warren Buffett reaches for the wallet on a $44 Billion deal, you have to sit, take notice, and ask yourself what it means. Buy looking at the deal we can get into Warren's mindset. Here are some of my thoughts: 1) First off: Buffett has offered $100 per share for BNI, and he said on TV today that thye would take on some debt to do the deal. This interesting because Buffett usually pays with cold hard cash. TAKEWAY: Buffett thinks debt is currently cheap. And that his stock is fairly priced. 2) The stock market did not rally on the news. TAKEAWAY: This stock market is fundamentally dysfunctional. 3)  As Zero Hedge has been astutely pointing out, rail traffic, often watched as a good barometer of the economy, has not recovered at all. Let's put it this way. The stock market is 5% higher than it was a year ago. Rail-car loadings are down 18%. TAKEWAY: Warren is taking a flyer on a long-term bet. He really thinks he's buying a bottom, but he's not sure if it will come tomorrow or in three years. 4) At today's valuation, $91 a share or 20% higher than yesterday after the deal was announced, BNI pays a 2% dividend and has an enterprise value/cash flow ratio of 6.9. The return on assets is 15%. Not bad numbers for a rail company. TAKEAWAY: Ther are deals to be had in this market, especially on a cash-flow and dividend basis. 5) Buffett is willing to split his Berkshire B shares by 50:1 to do the deal. TAKEAWAY: Warren, just like everybody else, wants folks to own his stock. 6) James Altucher, author of "Trade Like Warren Buffett," points out that this may not be a direct bet on commodities but it shows that Buffett believes that commodity prices will likely be going higher and the dollar, lower. BNI, is, after all, a play on "stuff" -- coal, oil, and commodities TAKEAWAY: This could be construed as a commodities bet 7) This is Warren Buffett's biggest deal ever! TAKEAWAY: That's bullish. 8) The deal took a total of 10 days to work out. TAKEAWAY: The man doesn't fool around. 9) Some folks are saying this is a green play. TAKEAWAY: Some journalists really like to reach. Okay, so railroads are more effecient than trucks. But are locomotives really "green"? Gimme a break. 10) Burlington Northern is not Twitter. TAKEAWAY: Thank goodness. Buffett still bets on real businesses.