Motley Fool: Auto industry helps keep railroad revenues stable

With oil prices so steep, many investors interested in transportation are turning from the trucking industry to railroads, which are more energy-efficient. Surprisingly, the biggest factor driving railroad growth right now is the resurgence of the auto industry. According to Progressive Railroading, as of April 30, auto carloads were up 9.6 percent over the same time last year.

Revenue from shipping cars varies, but it usually makes up about 7 percent of the bottom line for major railroads. CSX, for example, derives about 8 percent of its annual revenue from handling automobiles, touching close to one out of every three autos produced in the United States.

We’re not just talking about Detroit’s Big Three, either. Volkswagen recently opened a $1 billion plant in Chattanooga, Tenn., with the intention of shipping 85 percent of the automobiles it produces by rail. CSX and Norfolk Southern are positioned to benefit from that.

Meanwhile, after Union Pacific watched its automobile loads shrink 50 percent in 2009, it instituted a series of changes, including developing a special adjustable automotive rail car that can hold various sizes of vehicles. Auto traffic climbed 37 percent in 2010, and now Union Pacific is marketing the train car to other railroad companies.

If cars sell well in the United States, railroads will reap the benefits. Even relatively small revenue streams can make a difference.

Ask the Fool

Q: Is it safe to invest in commodities? – S.G., Worcester, Mass.

A: According to the Wall Street Journal Interactive Edition’s Guide to Online Investing, “Investing in commodities and financial futures is about as extreme as you can get on the risk scale.” Global commodity exchanges facilitate trading in all kinds of things, such as interest rates, currencies, metals, crude oil, gasoline, cotton, lumber, sugar, coffee, wheat and corn.

Investors are drawn to commodities because of the great leverage available. You can often buy items by paying only about 10 percent of their value. In an extreme example, if you buy $50,000 of pork bellies for $5,000 and they double in value, you’ve made a lot of money by investing just a little. Of course, if they fall in value, you can lose your entire invested amount – and then some!

You can lose much more than you invest with commodities and futures. Smart people have lost a lot of money in them, and most investors should steer clear.

My dumbest investment

On the urgent advice of a very clever friend, I bought $5,000 of an obscure British biotech company at 20 pence per share. The shares rose to 64 pence, and then dropped suddenly to 3 pence. It turned out that my clever friend had inside information and knew of a failed clinical trial at the company, but couldn’t tell me. Nor did he dare sell his own shares. The stock has recovered to 9 pence per share. I’m holding on, but the future for the company looks bleak. – M.B., online

The Fool responds: Biotechs can be tricky, as much of their value is tied to drugs or treatments still in development that might or might not end up approved and profitable. Your friend was smart and ethical to play by the rules and not divulge or act on inside info, even though you both lost money.

Since it appears you have more than $2,000 left, you’d do well to move that money into a better investment, one with a non-bleak future. Park your money in your best ideas, not so-so ones.