Railroads on Track for Solid Returns, Analysts Say

Thomas Wadewitz, transportation analyst at JP Morgan Chase, told CNBC’s “Morning Call” that railroads should be able to increase rates, making the sector attractive to investors.

“I think the underlying factor which is important to consider is the pricing trend,” Wadewitz said Monday. “From more of a medium- to long-term basis, infrastructure constraints should enable the railroads to continue to take up prices at a pace well beyond historic (levels). That’s the key factor underlying the favorable view of the group.”

He said Union Pacific , like Burlington Northern Santa Fe , has access to Wyoming’s Power River Basin, a region of low-cost coal production.

He also likes CSX .

Railroad stocks got a bump Monday when CNBC's Liz Claman learned that Warren Buffet's Berkshire Hathaway bought large stakes in two North American railroads in addition to the shares of Burlington Northern Santa Fe he already holds. Buffet didn't reveal which railroads he'd added to his portfolio.

Peter Bates, industrial analyst at T. Rowe Price, said investors should select railroad stocks after looking at the cash yield.

He said Burlington Northern offers a cash yield of about 3%, compared with Norfolk Southern’s 5.5%

“I think Norfolk Southern offers the best cash yield of the group, and it’s a very well-run company,” Bates said.