Yesterday it was announced very loudly that "my pal Warren" was going to acquire the 77.4% of the Burlington Northern Santa Fe (NYSE: BNI) railroad, that Berkshire Hathaway (BRK.A) does not already own, for $100 per share, offering about a $24 premium to Mondays closing price.

Talk about putting your money where your mouth is -- yikes! Buffett has gone all in, betting the economy is healing, and silencing anyone that questioned his integrity or motives for cautious optimism saying it was all talk!

CSX (NYSE: CSX), a railway entity similar to companies such as Burlington Northern Santa Fe Corp. (NYSE: BNI), Norfolk Southern Corp. (NYSE: NSC), and Union Pacific Corp. (NYSE: UNP), saw a nice bid during Tuesday's after-hours session. The market enjoyed CSX's Q3 earnings report so much it sent shares of the company higher by 2.6%.

What was so good about the data? According to TheStreet.com, CSX made 74 cents per share from continuing operations. The analyst community was counting on 71 cents per share. Perhaps more importantly, management seemed pretty upbeat on the state of the economy. Like a lot of other pundits, CEO Michael Ward thinks that the recession will eventually start to wane, and that we may have already experienced the bottom of the cycle.

Rail carloadings for agriculture and coal are down, as is containerized trade traffic, and the near-term does not look bright, but you'd never know it from Burlington Northern Santa Fe's stock price trend.

Institutional investors have bid-up shares in anticipation of U.S./global recoveries. Therefore, I'm reiterating my Buy rating for Burlington Northern (NYSE: BNI), first recommended on April 30, 2009 at a price of $67.81. However, there is caveat: wait for a pull-back to about $75, and hope the market gives you the chance at a decent entry point.

In running a very tight stock screen recently for value plays Burlington Northern Santa Fe (NYSE: BNI) showed up on a list of 14 stocks. Interestingly all the large railroad stocks did. This reminded me of several stories I have done on the subject, the most recent being Chasing Value: Watch BNI -- the heck with Citigroup.

To summarize, about six weeks ago a Citigroup (NYSE: C) analyst declared it was time to sell the stock when BNI was trading in the mid $60s -- I said investors should do the opposite, it was a great value. Friday the stock closed at $76.98. Even at this price it is a value and ever more so with oil prices steadly creeping up.

"It's hard to find any good news these days but I was pleasantly surprised with the third-quarter railway results, as almost all of the 'class 1 carriers' reported better than expected earnings," notes analyst Tom Slee.

The contributing editor to Gordon Pape's Internet Wealth Builder explains, "Several rail stocks are starting to look attractive at these depressed levels and Burlington Northern (NYSE: BNI) remains my preferred choice in the group." Here's his outlook.

"Even with the economic downturn starting to bite, reduced fuel costs and increased freight rates offset lower volumes. Equally important, the companies remain cautiously optimistic despite the miserable outlook.

"They are confident that further freight rate price increases in the 4% to 5% range are sustainable and will still allow them to undercut inefficient truckers.

"Unfortunately, none of this prevented the stocks from being battered during the market collapse. However, I think that fourth-quarter profits are likely to remain strong and the longer term outlook for railroads remains favorable.

"Burlington Northern continues to power ahead. A shrinking economy must eventually take its toll but there was no sign of any weakness in BNI's third-quarter results. Operating earnings came in at $1.91 a share, up 29% from $1.48 in 2007.

"Warren Buffett's holding company, Berkshire Hathaway (NYSE: BRK.B), has been the single greatest investment of our lifetimes," says Alexander Green, noting, "His compounded annual gain from 1966 to 2007 was 21.1% vs. 10.3% or the S&P 500."

In the Oxford Insight, the investment director explains, "It is now time to buy the 'ultimate no-brainer'." Here's his assessment.

"Despite this strong long-term performance, Buffett experienced a rare earnings letdown during the second quarter of this year.

"Although revenue increased 10% to $29.3 billion, insurance related write-downs hurt the company's bottom line. Still, the shortfall was far from cataclysmic. For the quarter, earnings fell 7.6% to $2.88 billion.

"Despite the shortfall, the company still maintains a top-notch credit rating and has over $28 billion in cash, a war chest for the world's greatest investor. How has Buffett been so successful? He takes a disciplined value approach to investing. And he sticks with it.

Through May, the S&P 500 is down 5%. The interesting news to me is that some stocks have been doing phenomenally well. They appear to be benefiting from the weak dollar and strong demand for raw materials -- like oil and coal -- in emerging markets.

It happens that I picked three of them for my newsletter -- whose average stock has risen 26% since the beginning of 2008. Here are the top three -- and how much they've risen since their first mention there:

• Walter Industries (NYSE: WLT) +124%. Walter is a coal, natural gas, and home construction and finance company that is spinning off the latter and is benefiting from rising coal prices.
• Southwestern Energy (NYSE: SWN) +36%. Southwest is an oil and gas explorer that was just added to the S&P 500.
• Burlington Northern (NYSE: BNI) +24%. Burlington runs trains and Warren Buffett owns its stock. One analyst boosted 2008 EPS estimates from $5.90 to $6.05 due to fuel surcharges and rate increases, partially offset by significantly higher unhedged fuel costs and flat-to-modestly-lower volumes.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

"Having spent a lot of time recently studying the North American transportation industry, my conclusion is that trucking is on the decline while the railroads are poised to increase market share," notes Tom Slee.

The contributing editor to Gordon Pape's Internet Wealth Builder states, "The logical conclusion: buy rail stocks now." Here he looks at Kansas City Southern (NYSE: KSU) and Burlington Northern Santa Fe (NYSE: BNI).

"Who would have thought it? Railways are having a good year. They were supposed to be hunkered down, riding out the recession. Instead, the old iron horse is thriving.

"Surging demand for commodities is more than offsetting a slump in building materials shipments. Even higher energy costs are proving a plus for the railroads. Each jump in oil prices gives them a bigger edge over their gas guzzling competitors: trucks.

"Most important, the rails are able to raise rates despite the economic downturn. Their surcharges are sticking. Yet the stocks are out of favour.

MAJOR PAPERS:

• The Wall Street Journal reported that Berkshire Hathaway Inc (NYSE: BRK.A) chair Warren Buffett is in a position to help companies like Ambac Financial Group Inc (NYSE: ABK) and MBIA Inc (NYSE: MBI), possibly providing relief amid the credit market turmoil; sources speculate the company could also get into the bond-insurance business.
• Retailer Kohl's Corporation (NYSE: KSS) is today expected to announce an exclusive multi-year active wear licensing partnership with Fila Luxembourg S.a.r.l., a part of Fila Korea, according to the Wall Street Journal.
• According to a senior executive at Telefonica SA (NYSE: TEF), the company's efforts to obtain exclusive control of Vivo have stalled, the Financial Times reported.
• CEOs of CSX Corporation (NYSE: CSX), Union Pacific Corporation (NYSE: UNP) and Burlington Northern Santa Fe Corporation (NYSE: BNI) told the Financial Times that if any of the new four bills to regulate rates, that are currently being debated in congress, becomes law, accelerating investment in U.S. railroads' capacity could come to a halt.

OTHER PAPERS:

• News Corp's (NYSE: NWS.A) Rupert Murdoch said the company plans to replace nearly one million paid subscribers of the online Wall Street Journal with 10-15 million "who wouldn't pay a thing." Murdoch's long-term plan is to penetrate developing markets, The Australian reported.

When Warren Buffett buys, people listen.

And right now Buffett, head of Berkshire Hathaway (NYSE: BRK.A) is into Burlington Northern Santa Fe (NYSE: BNI) in a big way. According to information filed with the Securities and Exchange Commission, Buffett has upped his stake in BNI to 14.8%.

In BNI, Buffett is hooking up with a long-term, secular trend -- the revival and expansion of the nation's railroads. Aided by strong demand for commodities in the U.S. and abroad, and by an increase in transportation services, railroad companies are thriving. BNI, and Union Pacific (NYSE: UNP), and CSX Corp. (NYSE: CSX) have all benefited from solid demand for their services in the U.S. and robust growth in emerging market economies (particularly China, India and South America).

Large investors such as Warren Buffett and Carl Icahn, as well as hedge funds, have invested more than $8 billion in railroad stocks, calculating that strong business conditions for the rails will continue. But are they on the mark or late to the railroad party?

After a solid performance in 2006, Burlington Northern Santa Fe (NYSE: BNI), Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC), are part of a sector that has gained 20% this year, despite a modest decline in traffic volumes (about 4%), to date.

The modest traffic dip - attributable primarily to the sluggish conditions in certain U.S. economic sectors - is not insignificant, analysts say. Still there are several long-term secular trends that suggest that the rail's recent strong run is far from over.

First, U.S. imports/exports remain strong: rails play a large role in transporting goods from and to coastal ports. Energy costs are driving part of this traffic increase: as diesel and gasoline prices rise, rail transport becomes a better transport value for many businesses/customers.

Second, commodity demand -- particularly in emerging-market and recently-developed countries -- is strong, and is expected to remain solid in 2007 and 2008, as the global economy continues to expand at a greater than 4% rate.

Further, the major U.S. rails are the survivors -- winners, really -- of a sector that scaled down and decreased the number of providers in the 1970s and 1980s. Translation: the rails
have a pricing power advantage with regard to many contracts and clients.

In Thursday afternoon trading, Burlington Northern gained 74 cents to $87.87, Union Pacific rose $1.06 to $118.81, and Norfolk Southern climbed 74 cents to $55.31.

To be sure, if the U.S. economy dips into a recession, or if the global economy slows dramatically, the investments by Buffett, Icahn, etc., would then look like riskier ventures, but so long as the secular trends remain in place, their calculation appears to be prudent, to say the least.

Even before investor Berkshire Hathaway's (NYSE: BRK.A) Warren Buffett reported that he holds a 10.9% stake in Burlington Northern Santa Fe Corp. (NYSE: BNI), investors have had their eye on BNI.

A while back, if you mentioned "investing" and "railroad" in the same sentence, you'd hardly stir
attention on Wall Street. Railroads were viewed as antiquated companies in a contracting sector.

Well, the times, as Robert Allen Zimmerman so aptly put it, they are a-changing. What changed for the rails? First the number of major railroads in the U.S. decreased during a period of sluggish demand. Then, the globalization era dawned and provided a double-dose of new demand:

-Railroad networks have experienced strong revenue gains from the transportation of commodities, particularly coal, as demand for vital commodities increases in both developing and developed world economies.

-Also, international trade has provided railroads with more containerization business. With energy prices at elevated levels, more companies are choosing the rails as their container transport service, as opposed to trucking.

It's a simple riddle and the answer is simple also. You'll probably kick yourself if you didn't think of it.

Riddle: Why would Warren Buffett want to play with trains?

Answer: Because he sees money in them.

Burlington Northern & Santa Fe (NYSE: BNI), Union Pacific Railroad (NYSE: UNP)

I'll keep this short and sweet because I just got off a twelve-hour shift and I have about six hours to sleep before I get back up and start all over again. Don't pity me, those are just the facts. If I don't average 50 hours a week, the credit union will come and swipe the Chevy truck off of my driveway!

Here are some of the things that I think Warren Buffett likes about the trains:

1.) Railroads are currently in a mildly depressed state business wise yet they are presenting very strong projections for the mid to long term.

2.) I believe that the American Railroad Association and members of the current Congress have a mutually held belief that railroads may expect to be well treated by government through the next presidential administration.

3.) Continuing upward pressure of fuel costs make rail transport increasingly more competitive with the trucking fleet and shall prompt more wholesale purchasing within our own continent.

4.) The rail industry has recently reported its safest year in history and it may expect reduced liability costs both within its own workforce and involving contact with the public sector.

I like trains also. As proof of that you may check out my past blog posts regarding them. While it is true that I didn't come right out and tell you to invest in the railroads, I did hope that you'd look into them.

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Burlington Northern Santa Fe Corp. (NYSE: BNI) -- implied volatility low; suggests less Risk as Buffett buys. BNI, an operator of 32,000 railroad route miles, is recently up $6.05 to $88.71. Form 4 filed with the SEC.gov revealed Warren Buffett holding company BRK purchased 1,646,900 shares worth $133.967,245 on 4/4/07-4/5/07. BNI May option implied volatility of 24 is below its 52-week average of 27 according to Track Data, suggesting larger price fluctuations.

Foot Locker Inc. (NYSE: FL) -- April 25 & May 25 calls trading on renewed & unconfirmed Chatter. FL, a footwear & apparel operator of 3,950 retail stores, is recently up $.28 to $23.85 on renewed & unconfirmed takeover chatter. FL April 25 calls have traded 62 times on transaction volume of 1,716 contracts, above its open interest of 1,300 contracts. FL May option implied volatility of 31 is near its 26-week average according to Track Data, suggesting slightly higher price risks.

The Volatility Index for S&P 500 Options (VIX) is up .04 to 13.27.

Option volume leaders today are: Dow Chemical Co. (NYSE: DOW), Intel Corp. (NASDAQ: INTC), Dendreon Corp. (NASDAQ: DNDN) and Research in Motion, Ltd. (NASDAQ: RIMM).

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.