More from Jason in Money Morning:

Last month, the iconic investing guru once again displayed his enthusiasm for railroad stocks by adding to his already sizeable stake in Burlington Northern Sante Fe Corp. (NYSE:BNI). After picking up 7.85 million shares of Burlington in early October, Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A, BRK.B) last week added another 825,000 shares to its holdings at a price of $79.65 apiece

Buffett has been bullish on railroad stocks for the past year. Buffett made his first move on Burlington Northern in April 2007, acquiring nearly 40 million shares – close to 11% of the railroad. That August, Berkshire went shopping again, loading on an additional 3.3 million shares of Burlington. He added another 6,000 in September.

Buffett continued the trend in 2008, adding 10,300 shares of Burlington to his holdings over a two-week period that ended Jan. 22.

With the purchases made last month, Berkshire’s total stake in the Fort Worth, Texas-based railway has climbed to 18.9%.

And Burlington Northern hasn’t disappointed. Just last month, the second-largest U.S. railroad reported a 31% increase in third-quarter profit. For the three months ended Sept. 30, the company reported net income of $695 million, or $2.00 a share – a 31% increase from the year-ago results of $530 million, or $1.48 a share last year. Revenue jumped 20%, reaching $4.91 billion.

“While we are all concerned about the current financial and economic situation, we continue to be optimistic about the future of our diverse franchise and we remain confident about our long-term prospects,” Matthew K. Rose, the company’s chairman, president and chief executive officer, said in a statement.

Warren Buffett is confident, as well, though not too long ago, Buffett himself wrote off the entire railroad industry as a poor investment.

“Warren and I have hated railroads our entire life,” Charles T. Munger, the vice chairman of Berkshire Hathaway, said last year. “They’re capital-intensive, heavily unionized, with some make-work rules, heavily regulated, and long competed with a comparative disadvantage versus the trucking industry, which has a very efficient method of propulsion (diesel engines) and uses free public roads. Railroads have long been a terrible business and have been lousy for investors.”

The reason for the change of heart can be attributed to three factors, says Burlington Northern’s Rose.

“I refer to it as a ‘three-legged’ stool,” Rose told BusinessWeek. “Fuel, congestion on highways, and carbon.”

Burlington Northern On Track

Diesel prices have more than doubled in the past five years, and trains use only just a quarter of the fuel that trucks do. Even with the recent decline in oil prices, Rose says railway transit will maintain an advantage over trucking as long as crude stays above $25 a barrel.

Just to be on the safe side, Rose acquired 200 fuel-efficient locomotives from General Electric Co. (NYSE:GE). The engines burn 20% less fuel than their predecessors, BusinessWeek reported. Additionally, Burlington Northern next year will become the first company in the industry to deploy a hydrogen-powered locomotive.

More fuel efficiency not only shields Burlington Northern from high oil prices, it also gives Rose an extra bargaining chip when it comes to dealing with more environmentally conscious businesses.  For years now, Burlington has provided potential customers with data showing exactly how much more carbon-friendly their hauls would be if they used trains instead of trucks.

For instance, a train carrying 100 tons over 1,000 miles produces 45% less pollution than a long-haul truck does, according to Burlington.

In addition to being more fuel-efficient, Rose makes the argument that trains are simply more efficient – period.

While it takes just two train employees to drive a 9,000-foot, 300-car train, it would take 300 truck drivers to move the same amount of freight.  That is, in part, because of new regulations enacted in the trucking industry that cap the total number of hours a driver can spend behind the wheel.

And unlike trucks, trains don’t get stuck in traffic – accounting for the third and final leg of Rose’s “three-legged stool” – traffic congestion.

“Congestion costs the industry $8 billion a year,” said Ray Kuntz, president of the American Trucking Association. “And it’s growing at 8% to 10% per year.”

No doubt, Burlington Northern is exceptionally well positioned.

The company controls approximately 32,000 miles of railway track throughout the United States and Canada. Burlington’s rails cover two thirds of the continental United States and its abundance of West Coast rail terminals and make it a vital artery in America’s Asian trade network. In fact, many containers coming into U.S. ports are delivered to shore and then placed directly onto Burlington Northern flatbed cars.

Over the past five years, U.S.-China trade has increased by 114%, reaching $386.7 billion.

Burlington has expanded its operations in lockstep. Rose spent $2.6 billion, or 16% of the company’s $15.8 billion in 2007 sales, to expand and improve the company’s rail network, BusinessWeek reported.

“Railroads – now, that’s an example of changing our minds,” Berkshire’s Munger said. “We threw out our paradigms, but did it too late. We should have done it two years ago, but we were too stupid to do it at the most ideal time.”

Berkshire may have been a little late, but the train still hasn’t left the station. Shares of Burlington Northern closed at $89.06 Friday, up $2.47 – or 2.85%  – each.

Source: Railroad Play Burlington Northern Hauling Gains for Warren Buffett’s Berkshire

Not even Warren Buffett was immune to the stock market’s rampant first-half gyrations, as Berkshire Hathaway Inc. notched its worst first half in 18 years, with the shares skidding more than 16%. But only a fool would count out the great Oracle of Omaha, who has spent the past several months restructuring his company’s portfolio and is now ready to come out swinging for the year’s second half.

As Money Morning’s Horacio Marquez noted in his most recent “Buy, Sell, or Hold” feature, Berkshire Hathaway has had a tough start for the year.

The company’s net earnings for the first half were $3.8 billion – a 33% decline from the $5.7 billion reported for the same period last year. But even though the second quarter was weak – especially by Buffett’s standards – it showed marked improvement from the first three months of the year.

Berkshire reported about $1.6 billion in unrealized losses from derivatives in the first quarter. But after warning that derivatives contracts will often “swing wildly,” the company posted $689 million in derivatives gains in the second quarter.

Berkshire’s revenue actually rose 10% to $30.09 billion for the quarter.

But that’s not enough for Buffett, who has set about restructuring his company’s holdings. In the past few months, Berkshire has reduced its investments in Anheuser Busch Cos. (NYSE:BUD) and Trane Inc., and added positions in NRG Energy Inc. (NYSE:NRG), Ingersoll-Rand Co. Ltd (NYSE:IR), and Sanofi-Aventis (ADR:SNY).

According to filings with the U.S. Securities Exchange Commission (SEC), Berkshire in June reduced its stake in Anheuser Busch to 13.85 million shares, less than half the 35.56 million shares it held as of March 31. It’s likely the company received a tidy sum for its shares, as earlier that month InBev SA (PINK: INBVF) offered $65 a share for the American icon. Buffett admits to bailing on the Bud brand before InBev raised its offer to $70 a share, but AB was trading at close to $62 a share on June 30, much higher than the $47 a share the company was valued at in late March.

Also in March, Berkshire dumped its 10.9 million shares of Trane Inc. That stake was valued at more than $500 million as of March 31.

After unloading in the spring, Buffett treated Berkshire Hathaway to a $4-billion shopping spree over the next several months. By the end of the second quarter, Berkshire’s stake in French drug maker Sanofi Aventis had shot up 317,200 shares to reach 3.9 million. Berkshire also added 5 million shares of Ingersoll-Rand, and announced new holdings in NRG Energy, the second-biggest power producer in Texas. Berkshire had 3.24 million NRG shares as of June 30.

Even more interesting, in a move that highlighted Buffett’s bullishness on railroad stocks, Berkshire doubled its stake in Union Pacific Corp. (NYSE:UNP), taking its holdings from 4.45 million shares at the end of March to 8.91 million shares as of June 30.

Last year, Buffett and Berkshire road the rails hard. Buffett made his first move on Burlington Northern Santa Fe Corp. (NYSE:BNI) last April, acquiring nearly 40 million shares – or close to 11% – of the railroad. He then moved on to snap up 10.5 million shares of Union Pacific Corp., and 6.4 million shares of Norfolk Southern Corp. (NYSE:NSC).

Later in August, Berkshire went shopping again, loading on an additional 3.3 million shares of Burlington and another 6,000 in September. But Buffett didn’t stop there: He added yet another 10,300 shares of Burlington over the two-week period ending Jan. 22, bringing Berkshire’s total stake in the company to 18.2%.

Berkshire’s second-quarter acquisitions, which were disclosed in an SEC filing last week, are only a fraction of the $3.98 billion Berkshire spent on stocks in the April-June period.

Even if Buffett bought the shares at their highest second-quarter prices, which he almost certainly did not, the total cost would only have been about $260 million. That means more than $3.5 billion went into smaller amounts of unnamed stocks the company was not required to disclose.

Where that money went is anybody’s guess, but Buffett indicated in a recent interview with CNBC that a portion of it went into one of two stocks: Wells Fargo & Co. (NYSE:WFC) or American Express Co. (NYSE:AXP).

Wells Fargo stock has plummeted 22% in the past year, while American Express is down more than 37% in that time. However there may be some clues as to which stock Buffett really believes will rebound in some earlier comments he made.

“We’ll say at American Express… they are experiencing credit deterioration and they’re experiencing it sort of in all segments,” Buffett said earlier on CNBC’s Squawk Box. “So they’re seeing the rich customers slow down in payments, slow down in purchases.

“And American Express can describe that rather than I,” he added, “but I pay a lot of attention to that sort of thing. And incidentally, it will get cured at some time in the future, but right now the situation is getting worse and I would say that I don’t see any early end to that.”

That assessment doesn’t seem particularly favorable, particularly compared with comments Buffett made with regards to Wells Fargo just a few months ago.

“Wells Fargo stock was down last year,” Buffett said, “I don’t think the intrinsic business value shrunk. In fact, I said I thought it probably increased a touch.”

Berkshire already owns considerable stakes in both companies.

Source: Buffett Reignites Berkshire Hathaway with a $4 Billion Spending Spree

• Chief Executive Alan Schwartz, forced to sell liquidity-starved The Bear Stearns Cos. Inc. (BSC) to JPMorgan Chase & Co. (JPM) in a fire sale less than three months into his tenure, has been invited to stay on as a senior dealmaker, Reuters reported, citing a person familiar with the situation. A formal agreement has yet to be reached and it is still possible Schwartz may leave the bank, the source said.

• The Commerce Department announced yesterday (Monday) that retail sales increased 0.2% in March, Bloomberg News reported, slightly exceeding economists’ average expectations of no change. The increase was due to higher gasoline prices, as purchases excluding gas remained flat.

• Joseph Brandon has stepped down as CEO of General Re Corp., a Berkshire Hathaway Inc. (BRK.A, BRK.B) subsidiary. Brandon was once considered a potential successor to Warren Buffett, but prosecutors have named Brandon as an unindicted co-conspirator in a scam to defraud investors, Bloomberg News reported. Four other former General Re executives have been convicted.

• General Motors Corp. (GM) announced yesterday (Monday) that it would begin construction on a $200 million plant in Joinville City, Brazil. The plant will employ 500 workers and begin production of engines and other automotive parts by fourth quarter 2009, MarketWatch reported.

• Exxon Mobil Corp. (XOM) announced yesterday (Monday) that it would begin drilling in southeast Hungary in search of oil reserves. Exxon recently signed a $75 million new energy development pact with MOL Hungarian Oil and Gas PLC to begin exploration in Hungary’s Mako Trough region, MarketWatch reported.

• Restaurant-chain operator Denny’s Corp. (DENN) reported a 0.4% drop in first-quarter same-store sales for the first quarter. Same-store sales, or sales in stores open at least one year, rose 0.7% at company restaurants and fell 0.9% at franchised restaurants.

• Goldman Sachs Group Inc. (GS) is slashing an undisclosed number of positions in mortgage and investment banking this month, Reuters reported.  These latest cuts are in addition to the 1,500 employees, or 5% of Goldman’s work force, who lost their jobs since December because they were deemed the company’s poorest performers.

• Fremont General Corp. (FMT) will sell the its retail banking assets to CapitalSource Inc. (CSE) for as much as $198 million. The sale includes $5.6 billion in deposits, $3 billion in cash and liquid investments and Fremont’s $2.7 billion stake in commercial real estate loans, Fremont said in a statement today. CapitalSource, the Chevy Chase, Maryland-based commercial lender, also agreed to loan Fremont as much as $200 million.