The Oracle of Omaha announced Tuesday that he's buying his favorite railroad.

Yesterday we asked, What's next for Buffett and Berkshire? Well, the Oracle of Omaha still hasn't divulged Berkshire Hathaway's (NYSE: BRK-A - News, BRK-B - News) end-of-Q3 holdings, which are due by mid-November, but according to this morning's reports, the insurance holding company agreed to buy Burlington Northern Santa Fe (NYSE: BNI - News) for a cool $44 billion. Berkshire is paying an approximate 30% premium to Monday's closing value, or $100 a share, to acquire the 77.4% of outstanding stock that it doesn't already own.

Buffett told CNBC that the buyout is essentially a "bet on the country," but said he would not make a bid for Union Pacific (NYSE: UNP - News), his other top railroad holding. Still Buffett's optimism for the sector should lift the Railroad Stocks Index. According to Bloomberg, Buffett sees fuel prices weighing on the trucking sector, leaving more efficient trains to pick up the slack.

Railroad stocks are trading higher on the buyout of what was the second-largest player in the industry. Union Pacific, Norfolk Southern (NYSE: NSC - News), and CSX (NYSE: CSX - News) were all up by over 5% at the open.

Kansas City Southern (NYSE: KSU - News) was up as much as 10% this morning after announcing a -47% decline in third-quarter profit. The company's 27-cent EPS topped estimates by two pennies. The stock has since pared gains to less than 5%.

Given the aggressive Burlington Northern buyout, it will be particularly interesting to see what Buffett is doing with the rest of Berkshire's investments. The deadline form 13F filings is approaching, and investors will be paying close attention to Buffett's top U.S.-listed picks at the end of Q3.

Credit card company American Express (NYSE: AXP - News), publisher Gannett (NYSE: GCI - News), and used car dealer chain CarMax (NYSE: KMX - News), among others, have all earned Berkshire over 15% in the last three months, assuming the positions are still in the portfolio.

Berkshire Hathaway shareholders will be voting on a 50-1 split of the company's 'Class B' shares. Buffett told CNBC that splitting the B stock allows anyone holding as little as one share of Burlington Northern to opt for the tax free exchange, which levels the playing field between large and small investors.

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