Rail Stocks: Which Will Be the Caboose? - TheStreet

NEW YORK (

TheStreet

) -- The rail industry may seem about as old-fashioned as a capitalist enterprise can get, but rails are intricately linked to every aspect of today's economy. While this week's strike by engineers of

Canadian National Railway

(CNI) - Get Report

harkens back to the olden days, recent trend lines in the rail sector support a solid 21st century investment outlook.

It's not just cars of coal -- which are declining relative to intermodal transport in importance -- but market factors as far afield as online retail sales numbers and the need to move those Amazon.com and Walmart.com orders, and even a more green-friendly transportation future, which are fueling the rail sector.

Warren Buffett's

recent investment in

Burlington Northern

(BNI)

added some intrigue, and confidence, to the story also. (Check out

Warren Buffett's portfolio

at Stockpickr.)

Most analysts think the track ahead looks positive for rails. The sequential increase in rail volumes between the second quarter and third quarter was one of the largest-ever on record, suggesting a recovery was well underway in what had been a disappointing volume story.

Meanwhile, the

Berkshire Hathaway

(BRK.A) - Get Report

acquisition of Burlington pumped a huge amount of money into the rail sector. In three weeks cumulative of Berkshire investments, the rails gained 22%. Which leads to the question: Even if the sector's long term outlook looks bright, has the sector become overheated?

UBS Investment Research recently downgraded

Union Pacific

(UNP) - Get Report

as a result of the run-up in rail stocks, saying it had become too expensive. UBS also detailed what it calls mini-bubbles in rail stocks caused by the Buffett investment.

The rails have been chugging along with the general recovery, but even so, which major rail operator do you think will be the performance caboose in 2010? Take our poll below, and see what TheStreet has to say.

-- Reported by Eric Rosenbaum in New York.

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