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Motley Fool: Trinity’s diversification brings promise to portfolios

You get two industries for the price of one with Trinity Industries (NYSE: TRN). The company is primarily a railcar producer, building new railcars to replace all of those old, graffiti-stricken ones traveling across the country delivering goods. But over the past few years, its energy division has been steadily growing. (It has other businesses, too.)

Consider the promise of its wholly owned subsidiary, Trinity Structural Towers, which fabricates tubular wind towers. While electricity produced from wind power in the United States was recently just 4 percent of all generated electrical energy, the U.S. Department of Energy believes wind could supply 20 percent of all U.S. electricity by 2020.

Based in Texas, Trinity Structural Towers is in a prime location to supply wind farms in the Great Plains, the wind-rich region that T. Boone Pickens has dubbed “the Saudi Arabia of wind.” Trinity’s backlog of structural towers orders totaled close to $270 million at year-end 2013.

With a price-to-earnings ratio near 12 and rising profit margins, Trinity’s stock is appealing. Its dividend that recently yielded 0.5 percent may not be exciting, but it reflects a hefty 33 percent increase. Best of all is its diversification. Trinity’s railcar business can cushion any hiccup in its alternative energy business, and while wind power spreads, when large equipment needs to be moved across the U.S., it will likely be done by a Trinity Industries railcar.

Ask the Fool

Q: What’s “window dressing”? – D.L., Sioux City, Iowa

A: It’s what some mutual fund managers do to fool most of us. Fund managers regularly report on their funds’ holdings, typically every three or six months. Since they want to look good and impress existing and potential shareholders, some will sell poor performers they’ve held for a while and buy recent stellar investments. That way, someone perusing their list of holdings as of the end of the quarter might be pleased.

For example, perhaps the Kitten Kaboodle Fund (ticker: MEOWX) has been invested in some stocks that have plunged or been tied to scandals recently. If so, before the day on which the fund’s holdings will be recorded and later revealed, the managers might sell out of those dogs, snapping up shares of recent market darlings. This is window dressing. Favoring funds with low turnover ratios (i.e., relatively little trading activity) can thwart window dressers.

Q: Can you explain what a “2 percent floor” is? – S.H., Dalton, Georgia

A: It refers to your miscellaneous itemized deductions. They need to exceed 2 percent of your adjusted gross income (AGI) to be of any value. If they do exceed it, you’ll be able to deduct only the amount by which they exceed it.

For example, if your AGI is $50,000, your floor will be 2 percent of that, or $1,000. If your miscellaneous itemized deductions total $825, you can’t do anything with them. But if they total $1,600, you can deduct $600. Many expenses may qualify, such as certain home-office expenses, tax-preparation fees, investment-related fees, job-hunting expenses and job-related expenses.

Learn much more in our Tax Center at fool.com/taxes and from the horse’s mouth, at irs.gov.

My dumbest investment

In my youth, I was convinced to invest in a now-defunct broadcasting company by a friend who had a large position in it. I bought about 10,000 shares of the micro-cap over time at an average of $3.67 per share and sold them for pennies as it fell into bankruptcy. My friend lost most of his investment capital as well, and stated that his money would have been better spent buying a high-end sports car. I learned not to take unsolicited stock tips too seriously and to admit defeat when an investment thesis has failed badly. – C.A., Houston

The Fool responds: You learned the hard way that penny stocks are ultra-risky and often wipe out naive investors. A fancy sports car would indeed have been a better purchase, but don’t think of it as an investment. Investments should ideally appreciate in value over time, whereas most cars will depreciate. It’s rarely smart to act on a stock tip without doing your due diligence first. Well-meaning friends might be convincing, but they may not be the most astute investors, and even savvy ones will make blunders on occasion.



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