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Over the long haul, nobody can argue with Warren Buffett's masterful approach to value investing. In a volatile trading environment like this one, though, you just might be able to outperform him.

According to a recent filing, Buffet's Berkshire Hathaway (NYSE: BRK-B  ) has purchased another 4.36 million shares of rail carrier Burlington Northern Santa Fe (NYSE: BNI  ) , bringing Berkshire's total stake in the company to 21.8%. Thankfully, Berkshire's filing essentially coincided with the earnings results released by Burlington Northern this week, so Fools have some data to absorb before deciding whether to ride on the Oracle of Omaha's coattails.

Mirroring strong results from competitor CSX (NYSE: CSX  ) , Burlington Northern saw fourth-quarter earnings per share rise 23% year over year, to an impressive $1.79. Exhibiting some noteworthy improvement to operational efficiency, the earnings bump far exceeded a modest 3% rise in revenue. Just as with CSX, though, I view the sources of these strong results as fleeting mirages.

Burlington overcame a 7% decline in overall freight volume largely because a two-month lag exists between fuel prices and the fuel surcharges the company passes onto customers. This boost, then, is a result of the uncanny speed with which oil collapsed from more than $140 per barrel to near $40 during the second half of 2008. With limited downside remaining for oil, that train has left the station.

Furthermore, whereas competitors CSX and Norfolk Southern (NYSE: NSC  ) both derive about 30% of their revenue from coal, Burlington Northern collects 33% of its revenue by hauling consumer products, especially domestic and international intermodal container traffic. I see a recovery on the horizon for global coal demand far more clearly than I can see a recovery in consumer-related commerce. Like Union Pacific (NYSE: UNP  ) , Burlington hauls a lot of Powder River Basin coal, and with inventories rising miners like Peabody Energy (NYSE: BTU  ) will be mining less of it ... at least in the near term.

Within a cauldron of unnerving economic indicators and a plague of reduced guidance for corporate earnings, Burlington's fourth-quarter and year-end results may look like a beacon through the fog. However, I believe the results foretell some significant obstacles ahead, and urge Fools to consider their moves carefully here. While I view quality rail carriers as excellent long-term investments, I am increasingly convinced that better entry points lie ahead for Burlington and other carriers.

Further Foolishness:

More than 2,000 Motley Fool CAPS members, including 462 All-Stars, expect Burlington Northern Santa Fe to outperform the S&P 500. In all, the CAPS community has shared its collective insight on 35 "road and rail" companies. Join the free CAPS community today and share your views on how the rail industry will fare throughout the current financial crisis.

Fool contributor Christopher Barker thinks outgoing Merrill CEO John Thain should have to try living on the wrong side of the tracks. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Peabody Energy. Berkshire Hathaway is a Motley Fool Inside Value and a Motley Fool Stock Advisor pick. The Fool owns shares of Berkshire Hathaway. The Motley Fool's disclosure policy can climb any mountain.

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Related Tickers

2/12/2010 4:01 PM
BNI.DL $100.21 Down +0.00 +0.00%
Burlington Norther… CAPS Rating: *****
BRK-B $143.83 Up +0.23 +0.16%
Berkshire Hathaway… CAPS Rating: *****
BTUUQ $16.07 Up +5.48 +51.75%
Peabody Energy Cor… CAPS Rating: *
CSX $30.41 Up +0.12 +0.40%
CSX CAPS Rating: ****
NSC $92.95 Up +0.03 +0.03%
Norfolk Southern CAPS Rating: *****
UNP $89.88 Down -0.49 -0.54%
Union Pacific CAPS Rating: *****