By Stockpickr Guest Columnist Steven Plisk

Oracle of Omaha. World's Greatest Investor. That nice gentleman with the pithy, Midwestern charm and ungodly stockpile of cash.

Of course, we're talking about Mr. Warren Buffett, the legendary Chairman of Berkshire Hathaway (BRK.A; BRK.B) and keynote speaker every year at that "Woodstock for Capitalists" gig. Legions of people diligently study his every investment move in pursuit of the coveted Berkshire Effect.

The guy who seems to buy and hold classics such as Coca-Cola (KO), American Express (AXP) and Procter & Gamble (PG) and make tons of money. The same guy who avoids the herd mentality and stuff he "doesn't understand" -- so no Apple (AAPL), Google (GOOG), Sun Microsystems (JAVA), Intel (INTC) or even Microsoft (MSFT).

As usual, the release of Berkshire's latest SEC filings was delayed a couple of months to minimize their ripple (tsunami?) effect.

There's a new holding that's creating a bit of a buzz. As of June, the company has initiated a position in NRG Energy (NRG), a power-generation company. This isn't the first utility Buffett has purchased. In fact, Berkshire is already one of North America's largest utility companies, having acquired MidAmerican Energy and PacifiCorp.

So what's the hubbub about? Basically it seems to come down to two things.:

1. The NRG purchase reinforces a theme that Berkshire's railroad holdings gave us an earlier glimpse of: A cash-rich company that needs to deploy its capital is selectively investing in capital-intensive industries where the dominant players offer an attractive ROIC. So far,. Buffett has pulled the trigger on Burlington Northern Santa Fe (BNI), Norfolk Southern (NSC) and Union Pacific (UNP). As we'll see, there may be a few more railroads that are worthy of being on investors' watch lists as well.

2. The NRG position is more than just a good marriage. What's really intriguing is that this is Buffett's first pure-play stake in a "merchant generator" -- an independent, wholesale company (rather than a regulated monopoly) that sells power to other utilities on the open market. Again, there may be more candidates in this space worth keeping an eye on.

Beside just buying one of these stocks piggyback-style, there could be a bigger thesis here. Let's take a closer look at each of these industries to see what we can see. I'll begin with the rails and then tackle the merchant generators.

Best-of-Breed Railroads

Historically, North American railroads haven't earned positive ROICs despite having powerful competitive advantages -- namely, their assets and geography. As Buffett would say, they have moats. Their struggles were understandable considering the asset-intensive nature of the business, but things have changed in recent years. These companies are now financially strong and generating large free cash flows. Many are using that cash in shareholder-friendly ways (paying dividends, increasing payouts) and still have more room to cut costs and increase efficiency. Thanks to skilled management and a little help from secular trends, better days have returned.

The current rail renaissance seems to be the result of growing global demand in several sectors, as well as other factors -- including consolidation, efficiency and technology -- following the industry's deregulation in 1980. Collectively, it's enabling these companies to overcome huge maintenance costs, gain pricing power and earn attractive profits. They keep getting more competitive with trucking, a trend that should continue as long as:

- Energy costs continue rising and/or the government restricts carbon emissions more aggressively (moving goods by rail is 3 to 4 times more fuel-efficient than moving them by truck).

- We keep growing crops, driving cars and using coal, lumber and metals --of which must be transported around the country.

- North America's global trade continues, and all those bulk shipments must be moved to/from our coastal ports.

Short of a total meltdown, I don't expect these things to end in my lifetime. If anything, they'll probably accelerate.

Here's a short watch list, including six of North America's seven Class I railroads and one short-line rail:

Burlington Northern Santa Fe (BNI) operates 32,000 miles of track throughout the Western two-thirds of the U.S. Its cargo is a defensive mix of commodities with less cyclical demand: intermodal containers (38% of revenue), industrial products (23%), coal (19%), agriculture (17%) and automotive (3%).

Canadian National Railway (CNI) operates 20,421 miles of track, spanning Canada from coast to coast and extending through Chicago to the Gulf of Mexico. With its "precision" operations, it consistently has the industry's highest profit margins and cash flows. It hauls forest products (20% of revenue), intermodal containers (18%), agriculture (17%), chemicals (16%), metals and mining (11%), automotive (6%) and coal (5%). Nonrail operations comprise the remaining 9%.

Canadian Pacific Railway (CP) operates 13,000 miles of track across most of Canada, the Midwest and Northeastern U.S. 70% of its cargo is a defensive mix of commodities with less cyclical demand: intermodal containers (28% of revenue), grain (20%), coal (12%), fertilizer (11%) and a diverse mix of other merchandise. Cyclical automotive and forest products each comprise 6% to 7%. CP is 3 years into an exclusive seven-year contract with Canpotex to haul all Saskatchewan potash, a key ingredient in crop fertilizer.

CSX (CSX) operates 21,000 miles of track in the Eastern U.S. It hauls one of the highest proportions of noncyclical coal products (26% of revenue) as well as intermodal traffic (14%), chemicals (13%) and a diverse mix of other merchandise. Its operating ratios are improving but are still at the low end of the industry's range, so this may be more of a turnaround play. The proxy fight with an activist hedge fund is currently under appeal and should be resolved in September.

Norfolk Southern (NSC) operates 21,000 miles of track in the eastern U.S. It's one of the industry's safest and most-profitable railroads. It hauls coal (24% of revenue), intermodal traffic (20%), plus a diverse mix of automotive, agriculture, metals, chemical and forest products (9% to 12% each).

Union Pacific (UNP) operates 32,205 miles of track in the western 2/3 of the U.S. Its cargo mix is rich in commodities with less cyclical demand: coal (20% of revenue), industrial products (20%), intermodal containers (19%), agriculture (17%), chemicals (15%) and automotive (10%). It owns 26% of Ferromex, a private consortium that operates Mexico's largest railroad, deriving more than $1 billion of revenue hauling freight to and from Mexico. Its profit margins and cash flows are improving, but lag its better-performing peers.

Genesee & Wyoming (GWR) is North America's only public short-line railroad, operating 6,000 miles of track and accessing another 3,000 miles. It derives two-thirds of revenue by transporting freight on about 50 short-line and regional-freight rails in the U.S., Canada, Australia, the Netherlands and Bolivia. Remaining revenues are derived from switching, loading, leasing, fuel sales and crewing operations. Its cargo mix is concentrated in more cyclical paper/pulp (21% of revenue) and lumber (11%) products, with the balance comprised of less cyclical metals/minerals (21%), coal products (18%), agriculture goods (11%) and a mix of other freight. While very acquisitive, Genesee has a disciplined strategy and diversified asset base, and is respected among industry peers for its operational excellence.

The smallest of the Class I rails, Kansas City Southern (KSU), didn't make the cut. It doesn't pass the moat test -- yet. The industry's rising tide is lifting all boats, however, including this one. While Kansas City Southern is still early in the process of getting its operating ratio under control, the trend is improving, and its revenues are hitting record levels. The firm has solid management that's undertaking some promising projects, and its routes in the Midwest and Mexico are positioned to exploit several positive trends. This may be another one to keep on the radar screen as a potential turnaround play or acquisition target.

The bottom line: The railroad industry is notoriously cyclical but has plenty going for it. When the markets aren't chasing the flavor of the month, they tend to revert back to fundamentally sound companies like these.

Look for Part II of this story on Monday.