Genesee & Wyoming is a railroad company that buys short rail lines, which are simpler and cheaper to operate than national routes. The company keeps costs low by acquiring outfits that require little capital outlay and are financed in large part by local customers.

The company improves its holdings' efficiency by eliminating redundant facilities and making better use of equipment. That tack works especially well overseas, where Genesee takes over state-run railroads that were never managed for a profit.

Genesee is expanding aggressively, and according to ABN Amro analyst Jason Seidl, this is the time to do it. It's the best buyer's market in the past ten years, he says.

Overseas, Genesee has been making a major foray into Australia, which accounted for 46% of the company's net income in the first nine months of 2001. The company's CEO sees good growth prospects in Australia, where natural-resources producers continue to expand their businesses.

The stock may look pricey, having soared more than 500% since April 1999. Yet shares trade at just 13 times the 2002 consensus earnings estimate of $2.44 per share. That's significantly less than the price-earnings ratio of most larger railroads.

Don't be fooled into thinking the stock has peaked, says Tim Stevenson, manager of the Evergreen Special Equity fund. Stevenson calls Genesee a "quiet, steady monster stock," whose clean balance sheet and strong earnings growth should keep it chugging along.

--Mark McLaughlin