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The future is bright for U.S. Class Is' stock prices because a rebounding economy will increase freight volume and 2004 can't possibly be as challenging to railroads compared with this year, according to a recent report by global investment banking firm UBS Warburg.

The company upgraded Union Pacific Corp.'s, CSX Corp.'s and Norfolk Southern Corp.'s status from neutral to buy, and increased Burlington Northern Santa Fe's stock-price target $2 to $33.

After Class Is endured high fuel prices, an agricultural drought, weak coal market and "substandard operations" in 2003, the railroad sector "would be hard pressed to experience a worse run of luck/judgement" in 2004, UBS said.

Fuel prices likely will drop, industrial production will increase and operational improvements will be a top priority because some problems "embarrassed" Class I operation managers this year, the firm said.