UBS: Value In Canadian National Railway, Norfolk Southern Corp.

Rail stocks have benefitted from news that Warren Buffett’s Berkshire Hathaway Inc. (BRKA) is now the largest shareholder in Texas-based railway Burlington Northern Santa Fe Corp. (BNI) after hiking its stake to 11%.

While not disclosing specifics, Berkshire also said it had staked smaller claims in two other rail companies. UBS analyst Rick Paterson speculated that these may be Canadian National Railway Co. (CNI) and Virginia-based Norfolk Southern Corp. (NSC).

“We suspect sentiment cannot get any better, it will likely ebb, and in our view most of the good news is now discounted in the stock,” Mr. Paterson said of BNI, while downgrading the stock to “neutral” from “buy.”

However, he still sees value in the rail sector and favors NSC and CN Rail, which he considers both cheap and high quality.