A major acquisition is coming to light this morning, as Berkshire Hathaway (NYSE: BRK.A, BRK.B) has announced that it is acquiring Burlington Northern Santa Fe (NYSE: BNI). The deal calls for BRK to dish out $100 per share in cash and stock for the 77.4% of BNI shares that BRK doesn't already own. The deal will cost BRK $44 billion.

The acquisition gives us a glimpse into the mind of the Oracle of Omaha, BRK's CEO Warren Buffett. He feels that the "country's future prosperity depends on it having an efficient and well-maintained rail system." Buffett is betting that railroads are going to do well, which would stem from prosperity in the American economy.

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.

It goes without saying that I favor the railroad sector. And why not? The nation's inadequate, congested interstate highway system and vehicle transportation system dependent on oil suggests a bottle-neck plagued, high-cost road transportation network in the years ahead.

That opens the door for a resurgence of the rails, and Kansas City Southern (NYSE: KSU) is part of that fortunate circle. Kansas City Southern has operations in the U.S. (56% of FY2008 revenue) and Mexico (44% of FY2008 revenue), including 6,000 miles of track.

In reading recent stories that Warren Buffett continues to increase his stake in Burlington Northern Santa Fe (NYSE: BNI) -- now standing at 22.4% -- I started to wonder if some day the name might be changed to "Berkshire" Northern Santa Fe RR?

'My pal Warren' is no doubt looking long term, and for most of the past two years has been up on Berkshire Hathaway's (NYSE: BRK.A) BNI investment. However that is not the case today as his most recent purchase at $75.00 per share (not bought in the open market) is under water; the shares closed at $66.04, down 12%. He is losing even more on his average purchase price.

"Even with the poor outlook for the economy, there are many investment opportunities being created by high energy prices and the low dollar," notes Jim Powell. In his Global Changes & Opportunities Report, he explains, "American 'rust belt companies' look especially good."

"Surprisingly, rising fuel prices are making some American manufacturers more competitive and I could not be happier about the improved outlook for many efficient U.S. producers.

"U.S. machine tool makers are starting to take back some of the business they lost to Japan 20 years ago. U.S. imports of Chinese steel are declining dramatically, while domestic production is rising at rates not seen in years.

"The list of U.S. businesses that are benefiting from the new trade relationships will lengthen, but it won't happen overnight. It's not just a matter of being loyal to the home team. America will benefit from creating more real wealth instead of the flim-flam financial products that led to the phony boom.

This post is part of a series on some of the most memorable companies that have disappeared.

Inspired by what must have been a less than luxurious train ride from Buffalo to New York in the early 1860s, George Pullman founded the Pullman Palace Car Company in Illinois in 1867. The company had a long and illustrious business cycle that spanned more than a century. Starting from humble beginnings based solely upon the vision of one man , the company rose to grandeur via the railroad boom of the early 1900s. At one point, Pullman even owned it's own "company town." The town, called Pullman, was located 14 miles south of downtown Chicago and was home to nearly 9,000 men, women, and children at its peak under the control of Pullman.

As one would expect, just when things were in high gear for Pullman, the government intervened. In the interest of antitrust laws, Pullman Inc. was ordered by the Justice Department to divest itself of either the Pullman Company (operating) or the Pullman-Standard Car Manufacturing Company (manufacturing). After three years of negotiation, the Pullman Company was sold to a railroad consortium for approximately $40 million. In much the same way, the Justice Department is making trouble on the rails again today.

The Pullman Co. didn't vanish as much as it was fractured and absorbed. It began with the 1944 sell off of passenger car operating rights and continuing through until 1987 when subway car manufacturing, performed under the name Pullman Technology, was sold to Candian conglomerate, Bombardier. The merger and acquisition history of Pullman from 1981 through today reads like a who's who of transportation, oil, engineering, and associated technologies. In fact, I believe that George Pullman would be amazed to discover that the original thread of the Pullman name was still active in manufacturing as late as 2004, when Pullman is reported to have been manufacturing "rubberized" automotive parts under the control of Tenneco Automotive.

Let us know in the comments what you miss about Pullman. And be sure to check out other Companies That Have Vanished.

Bipartisan legislation aimed specifically at increasing government regulation of railroads threatens to hamstring 25 years of successful growth and investment by that industry. The Railroad Antitrust Enforcement Act of 2007 (H.R.1650) would effectively undo specific and narrow antitrust process exemptions that were provided for the railroads by the Staggers Rail Act of 1980. The Staggers act effectively halted what had previously been a massive and staggering decline by American railroads. Currently, the railroads are effectively and efficiently regulated by the Surface Transportation Board.

The American Association of Railroads reported in a press release, "Since Staggers, railroads and their customers have benefited enormously. Railroads have reinvested $420 billion back into their systems since 1980. The result has been improved service and safety, and nearly double their traffic volumes -- all while lowering average rates by more than 50 percent in inflation-adjusted terms. That means the average rail [shipping customer] can move twice as much freight today for the same price as in 1980." AAR further reports that a just-released Morgan Stanley survey found customer satisfaction with rail service is at a historical high.

It should also be noted that the devastating decline suffered by the railroads prior to passage of Staggers is arguably the lynch pin of this nation's inability to establish reliable, desirable, and profitable mass transit for commuters by rail. The rate of investment by our freight railroads since 1980 could be one facet in bringing effective local and nationwide passenger rail service back within our grasp. The passage of H.R.1650 may effectively destroy any further hope of developing high-speed, cross-continental passenger rail service and the further expansion of local commuter rail services.

In an age when surface transportation is becoming incredibly more expensive and our airlines are in perilous distress, do we really need to limit our options by passing legislation which could severely injure a system that works? You may wish to consider contacting your legislators in an effort to halt H.R.1650 dead in its tracks.

On April 3, the American Association of Railroads released its monthly freight movement report for March 2008. The numbers again reflect weak consumer spending, with no relief in sight for the wilted home building industry. Carload volume, which does not include semi trailers or shipping containers, dropped 0.1% compared with March 2007 figures. Intermodal traffic volume consisting of shipping containers and truck trailers loaded on flat cars dropped 5.6% compared with one year ago.

Spurred by the weaker dollar, carload commodities for export are maintaining respectable volume, with carloads of grain increasing 13.9% and carloads of coal increasing 5.9%. However, the AAR press release indicates that of the 19 major commodity categories tracked by the AAR, 12 saw carload declines in March. Carloads of motor vehicles and equipment declined considerably, with a 19.4% drop in loading compared to 2007. Infrastructure and construction staples of crushed stone, sand and gravel showed a carload decline of 13.4% compared with a year ago. Lumber and wood products loadings remain in decline. AAR Senior Vice President John T. Gray gives perspective to the numbers by stating simply: "Recent disappointing economic news helps explain why rail traffic is not more robust."

The report of February rail freight movements was released Thursday March 6, by The Association of American Railroads. Again this month the report reveals some mentionable trends. The report on the AAR website indicates a gain in rail freight volume of 2.8 percent, for the first nine weeks of 2008. An estimated 296.1 billion ton-miles total volume was reported for the period.

There are declines showing in inter-modal traffic. Trailer and container loading is down 3.4 percent for the first two months of 2008. This means that a higher volume of freight is moving by rail, yet less of it is getting to the rails via truck. I could speculate that railroads shall continue to become increasingly more cost effective for volume shipment of freight. Watch for new possibilities with direct-from-rail distribution centers. Watch for rapid growth and development in the RFID sector.

A quick look at freight traffic via railroads indicates no surprising changes in our economic landscape. However, the numbers do reaffirm some interesting trends. Total rail freight volume for the fourth week of January 2008 was estimated at 32.4 billion ton-miles, a decrease of 1.2% from one year ago. Some of the decline is attributed to severe weather conditions early in the month, especially in the eastern states.

What bears special concern in the Association of American Railroads rail freight traffic report are the few categories of freight that are showing significant reductions in rail freight loading volume when compared to 2007. Coal coke, which is used mainly as an industrial fuel showed a major decline in loading volume of 36.8%. This could be due in part to a shifting away from hydrocarbon fuels. Lumber and wood products loadings declined by a significant 22.35%, which does not bode well for the construction and furnishing trades. Primary forest product loadings dropped by 19.9% which further indicates a slow start to the coming building season.

I read a quote in an article recently which stated, "What Wall Street is about is smart guys thinking about ways to make money from dumb ones." That quote is attributed to one John E. Fitzgibbon, the publisher of an online newsletter, in an article from Eric Dash via The New York Times. While Mr. Fitzgibbon's remark might validate special investing skill on the part of some smart and timely investors, I take exception to the notion that all those investors who lost money in the markets over the past year are the dumb ones.

The question now is, where is the smart money headed?

After learning that Warren Buffett, the value investor's equivalent of A-Rod, was putting his money into U.S. Railroad firm, Burlington Northern Santa Fe (NYSE: BNI), railroad stocks suddenly became trendy. Driven by increasing consumption for commodities and transportation services, railroads have been targets for value investors for a long time. Buffett's investment put the industry back on the investment map.

So, it wouldn't be surprising to see that hedge funds are playing the same hand. CSX Corp. (NYSE: CSX), a large integrated transportation company servicing everything from ports, trucks and rails, has been in the news lately as the target of an activist hedge fund based out of London, named the Children's Investment Fund.

The fund, started in 2003 by Chris Hohn, has been very active and successful in extracting shareholder value from a variety of situations. It forced the resignation of the Deutsche Borse CEO after he refused to abandon his plan to take over the London Stock Exchange.

It seems like the CIF hit a snag with CSX, though.

In response to the Fund's demands, CSX accepted none of them. In a great response sent by the CSX Board to TCI, management makes a strong case. You can read the letter here.

Over the past year, transportation stocks have lagged other shares. Since last October, for example, the Dow Jones Transportation Index has lost 5.1%, while the S&P 500 index has gained 13.25%.

But not all stocks in the transport group have tracked the index. Railroad shares, for example, have outperformed both the sector and the overall market, with the S&P Supercomposite Railroad Index (a sub-index of the S&P Composite 1,500 index) rising by 17.3% over the period. That compares to, say, the S&P Supercomposite Trucking Index, which has dropped by 6.6%

Among the reasons for the relative strength in railroad shares: interest from value investors like Warren Buffett, and the fact that rising oil prices don't hurt this segment as much as other, more fuel-dependent industries.

Still, some might argue that at this point, much of the news, whether good or bad, is probably factored into prices. If you combine that with the fact that the railroad sector is back to long-term resistance levels relative to its trucking company counterpart, that suggests it might be a good idea to sell the former and buy the latter.

Otherwise, given a worrisome economic outlook and the relative underperformance of the transportation sector generally, it could be time for those who've been riding the rails to jump off the train -- before it runs out of track.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.

It's a big deal whenever Warren Buffett so much as sneezes, and this morning was no different. Berkshire Hathaway's (NYSE: BRK.A) decision to boost its stake in Burlington Northern Santa Fe (NYSE: BNI) made the expected splash, and up went Burlington's stock 3%.

Back in April, Berkshire disclosed an 11% stake in Burlington, and then in May it announced investments in two other railroads: Norfolk Southern Corp (NYSE: NSC) and Union Pacific Corp (NYSE: UNP). Buffett clearly sees value in riding the railroads.

Then today came Berkshire's disclose that it had raised its stake from August 3 through August 7 to 11.5% from 11% -- which, while not exactly earth shaking, is a strong indicator that Buffett sees the recent price weakness enveloping the market as a buying opportunity. Usually when the "oracle" Mr. Buffett sees something, it is worth paying attention.

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.