Looks like Warren Buffett got it right... again.

Last February, when Buffett's investment company, Berkshire Hathaway (NYSE:BRK.A), paid $27 billion to acquire the remaining shares of U.S. railway Burlington Northern it didn't already own, it was the largest takeover of Buffett's long and illustrious career. And it may turn out to be the most astute investment by the "Sage of Omaha".

IN PICTURES: 9 Ways To Use A Tax Refund

Railways Report Strong First-Quarter Numbers
The deal was a massive conviction bet that the U.S. economy was on track to a sustainable recovery and that one of the prime beneficiaries of this would be the railways. Judging by the first-quarter numbers now being reported by railway operators like CP Rail (NYSE:CP), Union Pacific (NYSE:UNP), Norfolk Southern (NYSE:NSC) and CSX(NYSE:CSX), Buffett's insight into the nature of the economy and the rail industry proved to be right on track.

Freight Gains Likely to Continue
Like the rest of the economy, the railways suffered during the recession, as freight volumes dipped sharply. But the rebound in shipments so far this year has proved to be much stronger than expected. Industry-wide, freight carloads jumped 7.5% in March, the first monthly increase from a year earlier since July, 2008. And, it's worth noting that this increase is broad and deep in nature. Volumes of all sorts of goods, including chemicals, metals, agricultural products and finished goods like automobiles, experienced healthy gains. It's a sure sign that the U.S. economy is firing on virtually all cylinders.

Railways Hold Environmental Advantage Over Trucks
While the chances that this momentum will carry forward for the next couple of quarters is enough of a reason to be a buyer of the railways at this juncture, there are also sound arguments to be long the sector in the long run. At least that's the thinking behind J.P. Morgan's recent move to set-up a $1.5 billion global railways stock fund. As government policies continue to move toward addressing environmental concerns, moving freight by rail is likely to be favored over road transport, due to its lower carbon footprint. Railroads burn less diesel than trucks for each ton of cargo carried.

The Bottom Line
After experiencing a modest correction sell-off in February, the railways shares are up by roughly 30-35% percent. While a fair amount of this run-up can be attributed to a change in sentiment prompted by Mr. Buffett's well-timed acquisition of Burlington Northern, continuing improvements in the industry's fundamental should form the foundation for further gains from this point forward. And right now, there's every sign that those fundamentals will continue to improve. (For related reading, take a look at Think Like Warren Buffett.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    Why ETFs Are a Smart Investment Choice for Millennials

    Exchange-traded funds offer an investment alternative to cost-conscious millennials who want to diversify their portfolios with less risk.
  2. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  3. Mutual Funds & ETFs

    Should Investors Take a BITE Out of This New ETF?

    ETF BITE offers a full menu of restaurants. Is now the right time to invest?
  4. Financial Advisors

    5 Things All Financial Advisors Should Know About ETFs

    Discover five things all financial advisors should know about ETFs, including when ETFs may be a better choice for your clients than mutual funds.
  5. Stock Analysis

    The Top 5 ETFs to Track the Nasdaq in 2016

    Check out five ETFs tracking the NASDAQ that investors should consider heading into 2016, including the famous PowerShares QQQ Trust.
  6. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  7. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  8. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  9. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  10. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center