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".

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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.)

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