"After all, railways are supposed to be highly cyclical and are bound to suffer in an economic downturn. So the conventional wisdom is that these stocks are going to tread water in 2008.

"My feeling, however, is that this industry is going to surprise us with some excellent results this year, starting as early as the second quarter. There are two reasons for this. Number one, the North American railways are much more diversified these days.

"For instance, they are able to pick up any slack in automotive and housing demand with increased grain and coal shipments. They are concerned with bottlenecks, not empty freight cars.

"Second, increasing globalization works to their advantage. Goods manufactured in Asia have to be moved long distances from ports of entry to consumers. Arguably, railways are now somewhat recession-proof.

"Most important, however, is the fact that the trucking industry is in serious trouble. According to Donald Broughton, a long-time trucking analyst at merchant bank Avondale Partners, an astounding 935 U.S. trucking companies went out of business in the first three months of 2008 because of rising fuel costs.

"It's a miserable situation and likely to get worse as high gas prices trend even higher. So the chances are that we will eventually see a reduced trucking industry consisting of large companies charging much higher rates. That provides the railways with a chance to capture market share.

"In fact, it's an extraordinary opportunity for the railroad companies. I am not talking about winning the odd contract here or there; the numbers point to a seminal change.

"As a rule of thumb, railways have a 30% cost advantage over trucks because of fuel efficiency and that is becoming decisive, especially as the regionalized railroads are not in direct competition with each other and are able to pass along increased oil prices.

"Turning to the companies, one that I particularly like is Kansas City Southern. It's powering ahead and while the shares already reflects a lot of the good news, there is still a lot of upside potential in this stock. KSU is poised to have an exceptionally strong year and an even better 2009.

"Seemingly unaffected by the economic slowdown, Kansas City Southern posted some strong results in 2007. Revenue was up 5% year-over-year to $1.74 billion while earnings jumped almost 50% to $134 million ($1.57 a share).

"KSU again beat expectations in the first quarter of 2008. Earnings came in at 43c a share, compared to 21c the year before, well above the anticipated 34c. Increased shipments, stronger prices, and operational improvements all contributed.

"Another railway that looks very attractive is Burlington Northern Santa Fe, which moves more grain than any other American railroad and has become one of the world's largest transporters of higher-margin intermodal traffic.

"The second-largest railroad had a relatively soft 2007 as new wage contracts and poor fuel hedging slowed earnings. Now, however, BNI is barreling ahead once more and should do very well in 2008 and beyond.

"Late last year, with the subprime market collapsing and a possible recession looming, analysts were convinced that BNI's glory days were over. Then BNI surprised everybody by turning in an all-time record fourth quarter. Earnings came in at $1.46 a share compared to $1.42 in 2006.

"The encouraging thing is that Burlington did even better in the first quarter of this year, confirming that it is back on track and able to generate strong earnings growth despite the economic slowdown. Profit rose to $455 million in the three months ended March 31, equal to $1.30 a share, a 35% increase.

"Looking ahead, earnings should increase to about $6 a share this year and as much as $7 in 2009. While the shares have had a good run, they are still not fully reflecting BNI's earnings growth and long-term outlook.

"Many intermodal contracts are being renegotiated this year just as trucks are being driven out of business or forced to raise their charges significantly. The almost certain rate increases will flow directly to BNI's bottom line."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.