3 Companies That Are Cashing In on Higher Gas Taxes

by Aaron Levitt | April 10, 2013 9:45 am

As if we weren’t shelling out enough for a gallon of gas already, soon we’re all going to be paying even more at the pump.

The national gasoline tax has remained relatively constant in the past, but there are now numerous proposals in the works to increase the tax. Those measures will drive up the cost[1] of gasoline, which already sits at an ugly $3.57 per gallon[2], and diesel fuel for the average American driver.

The good news, though, is that you don’t need to just sit back and take your tax lumps. Instead, by investing in the beneficiaries of these new tax measures, you could enjoy profits and dividends that will more than make up for the pending increases.

A Necessary Change

To be honest, we’ve been kind of spoiled — except for maybe those citizens of California[3] — when it comes to taxes on our gasoline. That’s because the federal tax on gasoline and diesel fuel hasn’t been raised since 1993 — something that’s becoming a huge issue on the infrastructure front.

That tax covers about 45% to 50% of capital spending for transportation. Sure, states add their own surcharges to the federal tax, but even those have stayed constant in nominal terms. Unfortunately, the tax revenue has lost nearly one-third of its buying power over time.

For one, gasoline consumption continues to drop, as more Americans are trading their Suburbans for hybrids and the economic recovery is still crawling at a slow pace. On top of that, the tax hasn’t kept up with inflation, while the cost of road repairs has risen even faster than inflation. Mix those two factors together and you have a recipe for a major funding shortfall[4]. 

A huge shortfall, that is.

Given the poor grade of our roadways, The American Society of Civil Engineers estimates that the U.S. needs to invest $1.7 trillion through 2020 in order to improve our deficient surface transportation network.[5] However, based on current funding, we are only on track to raise half of that, which leaves a shortfall of more than $800 billion. Some analysts have pegged that number as even higher.

Thus, the U.S. Chamber of Commerce urged Congress at the beginning of this year to raise gasoline taxes and index them to inflation measures in order to provide funding for infrastructure spending. Each 1-cent increase in the federal gas tax generates about $1.8 billion in revenue.

Currently, there are several additional proposals in Congress including taxing miles driven, taxing new car purchases and creating a special “roadway” sales tax on goods. On top of that, seventeen states — including some very red ones — have enacted or are considering tax/fee changes to aid their ailing transportation infrastructure[6] budgets.

All of that focus on funneling more money to roadways, while like claws on a chalkboard to you and I, is music to the ears of a few publicly traded companies. Take a look at three of them.

Valmont Industries

We’ve already highlighted Valmont Industries (NYSE:VMI[7]) as great play on agriculture due to its leadership position in irrigation systems[8]. However, the company is a multi-threat when it comes to transportation spending.

You know those metal guide rails that run along the side of the highway? Valmont produces those, along with traffic control products, guideposts and fencing products for the road construction industry. While this division does take a backseat to agriculture for the company, it’s still quite profitable … and will be even more so as roadway spending increases.

Plus, despite its surging share price over the last few years, VMI is still relatively cheap at a forward P/E under 13.

Vulcan Materials

If the goal is to repair and build roads and bridges, then that requires aggregates. These bits of crushed limestone, gravel and sand are vital components in a variety of projects.

When it comes to aggregates, no one is bigger or better than Vulcan Materials (NYSE:VMC[9]). VMC is the largest producer of aggregates in the U.S. with 172 stone quarries, 43 sand and gravel plants, 81 sales yards, 37 asphalt plants and 118 ready-mixed concrete facilities.

After a rocky 2011 and early 2012 — which included cutting its dividend — Vulcan seems to be on the right footing and has more cash on its balance sheet than rivals like Martin Marietta Materials (NYSE:MLM[10]).

Tutor Perini

Finally, if you’re building a new road, you will need someone to actually do the heavy lifting. That’s where Tutor Perini (NYSE:TPC[11]) comes in.

TPC is a heavy construction company that specializes in public works infrastructure construction and the repair, replacement and reconstruction of highways, bridges, mass transit systems and water and wastewater treatment facilities[12]. Already, Tutor has been tapped to perform repair from the aftermath of Hurricane Sandy.

The company was founded in 1894 and could represent a value in the heavy space. It trades at 25% discount to book value and features a very healthy balance sheet — something that is unusual for the sector.

As more spending via these gas taxes begins to be doled out, TPC should benefit.

In the end, the bottom line is pretty simple: You don’t have to suffer as these taxes roll out. Instead, invest smartly and you could making more money instead of spending more.

As of this writing, Aaron Levitt did not own a position in any of the aforementioned securities.

Endnotes:
  1. drive up the cost: http://investorplace.com/2013/03/still-high-gas-prices-a-state-by-state-look/
  2. an ugly $3.57 per gallon: http://investorplace.com/hot-topics/gas-prices/
  3. California: http://investorplace.com/2013/03/californias-on-the-brink-of-a-black-gold-rush/
  4. recipe for a major funding shortfall: http://online.wsj.com/article/SB10001424127887323916304578401022066112256.html?mod=googlenews_wsj
  5. transportation network.: http://www.investorplace.com/2012/07/kkr-gets-into-infrastructure-you-should-too/
  6. transportation infrastructure: http://investorplace.com/2013/03/4-transports-leading-the-intermodal-boom/
  7. VMI: http://studio-5.financialcontent.com/investplace/quote?Symbol=VMI
  8. irrigation systems: http://investorplace.com/2013/01/another-drought-ahead-prepare-now/
  9. VMC: http://studio-5.financialcontent.com/investplace/quote?Symbol=VMC
  10. MLM: http://studio-5.financialcontent.com/investplace/quote?Symbol=MLM
  11. TPC: http://studio-5.financialcontent.com/investplace/quote?Symbol=TPC
  12. water and wastewater treatment facilities: http://investorplace.com/2013/03/3-water-utilities-that-could-make-a-big-splash/

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