3 Energy Efficiency Stocks Unfazed by Higher Gas Tax Talks - Analyst Blog

Oil prices are going steadily northward thanks to geo-political disturbances in Iraq, and the onset of summer; which has historically been the season of the cyclical rise in oil prices. Now, with the summer driving season getting into full swing we can expect oil to run up even higher.

The direct fallout of the twin pressure points created a spike in Brent crude oil prices, jumping to a ten-month high of around $115 per barrel from just below $110 per barrel throughout May. The quick spike has the market speculating that a further rise to around $122 per barrel is likely.

With oil prices increasing, Capital Hill is adding to the potential pain at the pump by proposing a rise in gas taxes.

Gas Tax Backdrop

Since the last raise in 1994, the U.S. federal excise tax is 18.4 cents per gallon on gasoline and 24.4 cents per gallon for diesel fuel. The funds generated here are transferred to the United States Highway Trust Fund, which spends the money on repair and expansion of the highway system.

However, with rising inflation over the past two decades, the current fuel tax is not sufficient enough to fund the Highway Trust Fund. A problem for the Highway Trust Fund is that fuel efficiency in newer vehicals has lowered gasoline sales over the years, and therefore their funds have deceased. Moreover, Federal fuel-economy standards require automakers to achieve an average of 54.5 miles per gallon for new vehicles by 2025, which would deplete the HTF even further.

The resulting decline in tax revenues is expected to push the U.S. Federal Highway Trust Fund into a shortfall this summer. The fund finances about half of the nation's road construction, and dates back to the mid 1950s.

Congress has temporarily bypassed the problem by transferring more than $50 billion of general fund dollars into the HTF. This has, however, raised the deficit. Conservative estimates now expect the spending from the fund to outpace revenues by over $160 billion in the next decade.

Proposal to Raise the Gas Tax

Given the deficit concerns, on Wednesday, legislation was proposed to raise the gas tax by two U.S. Senators, Democrat Chris Murphy and Republican Bob Corker. The duo has proposed raising federal gasoline and diesel taxes by 6 cents per gallon for 2015 and 2016 each. Subsequent to that, further raises are to be tied to inflation using the Consumer Price Index CPI.

In such a scenario, increased gasoline and diesel prices are slated to make a host of conventional transportation stocks unviable. However, Zack's has identified three companies that benifit from any fallout over the Capitol Hill game of taxes.

3 Stocks to Benefit

Tesla Motors Inc. TSLA:
With traditional fuel sources on their uphill journey, the direct benefactors would be electric car makers. The embryonic segment that has so far been at a loss versus its fossil fuel peers due to cost factors, may now be back with a vengeance. Of the battery-run electric car makers, Palo Alto, CA-based Tesla Motors is in the most advantageous position. The company has a long-term expected growth rate of 28.8%.

Tesla Motors has garnered a substantial share of the electric car market, owing to its impressive product portfolio and a steadily expanding Supercharger network. Moreover, by steadfast focus on raising its production capacity and expanding globally, the company can cater to any spike in demand. Being a supplier of electric powertrain components to global giants like Toyota Motor Corp. TM and Daimler AG (DDAIF), it is sure tide over any short-term market crunch. The stock price has increased 51.4% year to date despite having a defensive beta of only 0.4 times.

Maxwell Technologies, Inc. MXWL:
Another nascent market which promises to post big returns is that of the fuel cell makers. This has twin support of cheap natural gas from shale, and improvements in technology. The bulk of the fuel cell makers usually uses cost effective natural gas or hydrogen as their energy source. An interesting play in this space is Maxwell Technologies – the market leader in the growing ultracapacitor market.

This Zacks Ranked #1 (Strong Buy) stock delivered positive earnings surprises in three of the last four quarters, with an average positive earnings surprise of 87.13%. The company posted impressive first-quarter 2014 results with earnings outpacing the Zacks Consensus Estimate.

Maxwell encourages our bullishness outlook owing to the plug-in hybrid bus market which is gaining momentum in China and stable growth in its core ultracapacitor markets.   

This stock for investors with risk appetite, aptly shown by its beta of 1.3 times, has gained an impressive 15.8% over the past three months.

Trinity Industries Inc. TRN:
With journeys by highways at risk to be costlier, a surefire bet for investors would be the largest U.S. rail car manufacturer, Trinity Industries. Based in Dallas, TX, the company provides services and products to the energy, transportation, chemical, and construction sectors.

This Zacks Ranked #1 company posted impressive results for the first quarter with its net income of $226.4 million increasing 186% year over year. With its steady focus on growth, the company acquired the assets of three manufacturing companies in the first quarter of 2014.

With a forward Price/Earnings (P/E) of 11.92x at a discount versus its peer average of 14.07x, the stock surged 16.7% over the past three months, and still has enough fundamental strength to drive it upward.

Conclusion

We, however, have our fair share of apprehension over the potential of the gas tax proposal in Senate at a time when the shadows of November mid-term elections are looming large. After all, an ideologically divided Capitol Hill has witnessed the untimely demise of President Obama's corporate tax scheme. Other innovative proposals like that of Peter DeFazio's per-barrel oil fee and Senator Barbara Boxer's idea of wholesale oil tax are also likely to end up with the same ill fate.