Election May Yield Energy Winners

09/11/2008 12:00 am EST


James Oberweis

President, Oberweis Asset Management, Inc.

James Oberweis, editor of the Oberweis Report, finds two energy stocks he thinks will do well no matter who the next president is.

The market impact of the November elections is a hard one to reckon. Senator Barack Obama’s rhetoric sure sounds bad for stocks and rich people in general, but then again, he might be kidding—at least partially.

In reality, we expect that neither Senator Obama nor Senator John McCain will end up as idealistic as they are proposing today. Sen. Obama has already tempered his position on capital gains, hinting he would target a 20% maximum rate, not the 28% feared by many. And as for Sen. McCain’s promise not to raise taxes, with big bills to pay and a Democratic congress, we are skeptical it will be kept. In short, taxes are going up, just maybe faster under an Obama administration.

Energy is an area clearly vulnerable to legislative change. Normally our advisory letter focuses on tiny companies, but the changing landscape merits a mention of the likely beneficiaries, irrespective of market capitalization. While Obama has promised to tax “windfall” oil profits, both candidates have been supportive of promoting natural gas over oil given our country’s large natural gas reserves. GMX Resources (Nasdaq: GMXR), one of our favorite US natural gas exploration and production companies, will benefit if demand for natural gas increases. GMX has acreage in the Haynesville shale, a hot region in Louisiana and east Texas touted as the next Barnett Shale (the largest area of new natural gas discoveries in Texas). (The stock closed at $47 Wednesday—Editor.)

Both candidates seem to agree that we need to fuel environmentally friendly alternatives to foreign oil, including solar. Chinese-based solar stocks, which have been pounded in 2008 amid fears that Spain and Germany will reduce solar subsidies, could quickly become market darlings again if the next president sweetens solar economics in the US via subsidies or tax incentives. Our favorites are Suntech Power (NYSE: STP) and Yingli Green Energy (NYSE: YGE). Suntech is larger and better known, but Yingli is growing at 70% and trades for just nine times 2009 estimated earnings.

Yingli is a vertically integrated company that designs, manufactures and sells photovoltaic (PV) cells and modules, and designs, assembles, sells, and installs PV systems that are connected to an electricity transmission grid or those that operate on a stand-alone basis.

In the company’s latest reported second quarter, sales increased approximately 121% to $289.7 million from $118.0 million in last year’s second quarter. Yingli Green Energy reported earnings of 26 cents per share in the latest reported second quarter, versus six cents in the same quarter of last year. (The ADRs closed at $13.50 Wednesday—Editor.)

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