The Motley Fool: Long-term promise for railroads is strong

The Motley Fool Take

The Union Pacific (NYSE: UNP) railroad company runs between 23 states in the western two-thirds of the U.S. Its share price has dropped over the past year, boosting its dividend yield to a recent 2.5 percent and making it a more appealing portfolio prospect.

Why the slump? Well, along with an overall market weakness, prices for commodities have been weak, too, with oil prices plunging and demand for coal slowing. These factors can change over time, though, and until then, Union Pacific is good at keeping its costs under control, having grown its earnings per share consistently over the past five years. It has been successfully raising prices, too, and its own operations have profited from low fuel costs.

The long-term promise for railroads is strong, as, perhaps surprisingly, it’s far more economical to transport freight by train than by truck. Also, demand for energy products and agriculture should naturally improve over time as the U.S. population grows, and these are core products that Union Pacific transports. It’s simple math that works in investors’ favor and should help improve Union Pacific’s pricing power.

Meanwhile, the company has been investing in future growth by plowing more than $31 billion into its network and operations between 2005 and 2014. With free cash flow topping $3 billion annually and net profit margins recently topping 20 percent, Union Pacific is a strong performer.

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Q: What do I need to know about stock ticker symbols? — W.H., Niles, Indiana

A: A ticker symbol is a short identifier for a company’s stock. Most major American companies’ stocks trade on the Big Board — the New York Stock Exchange (NYSE) — or on the newer Nasdaq Stock Market. It used to be that NYSE stocks generally had three or fewer letters — such as T for AT&T, GE for General Electric or MMM for 3M. Nasdaq stocks typically had four letters, such as JBLU for JetBlue Airways or INTC for Intel. Nasdaq stocks might sometimes have a fifth letter tacked on to reflect something about the company, such as an F indicating that it’s a foreign company, or a Q indicating that it’s in bankruptcy proceedings.

Times have changed, though, and now NYSE stocks sometimes sport four letters — LNKD for LinkedIn and KORS for Michael Kors — while some Nasdaq stocks have fewer than four — MAT for Mattel and FB for Facebook.

To find a company’s ticker symbol online, click over to sites such as Fool.com and type the company name in the search box. Newspaper stock listings also usually include ticker symbols.

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A: It can help, because some companies do let employees buy stock at a discount, and some offer stock options or stock grants, too. But anyone can buy into publicly traded stocks, and all you generally need is a brokerage account. Almost every major company you can think of, and many smaller ones, are publicly traded. Read up and learn more before investing heavily in individual stocks.

My Dumbest Investment

My dumbest investment has been in Capstone Turbine, a company that specializes in micro-turbines. I have hung on for 10 years, hoping it will improve and be profitable. I have sold and bought back in on major news and momentum only to be disappointed numerous times. This company is a true enigma! How long can it stay in business? — D.B., Camarillo, California

The Fool responds: There are reasons one might be hopeful about the company, as its turbines can be used in a variety of promising ways, such as for hybrid electric vehicles, and it has a backlog of orders. But there are many red flags. For starters, a decade ago and even now, it’s a penny stock, with its stock trading for well under $5 per share. Over the past 10 years, it has posted net losses instead of net profits and negative free cash flow. Revenue has grown over that period, but it has been shrinking lately.

How is the company staying in business? Well, one way is by selling new shares. That may sound innocuous, but the more shares there are, the smaller the claim each one has on the business. That’s dilution, which destroys value for shareholders. Capstone has potential and may succeed in the long run, but it’s a struggling business and investing in it would be risky. Don’t hang on to companies in which you have little confidence.