Make Way For Energy-Efficient Buildings

By Aaron Levitt | May 12, 2010 AAA

After several months of debate, the Obama administration put forth its "Cash for Caulkers" plan. The measure aims to provide rebates to homeowners who invest in energy efficiency improvements. Officially called the Home Star Energy Retrofit Act, the idea first came into effect last year as one of the Presidents' ways to help stimulate the struggling economy. The House of Representatives recently passed the formalized version of the bill, estimating that the legislation will create nearly 168,000 construction, manufacturing and retail jobs. However, the $6 billion dollar price tag is a shell of the original $23 billion proposed last winter.

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The Retrofit Act would fund rebates of up to $3,000, for energy efficiency improvements such as increased insulation and the upgrading of windows and doors. The improvements will need to be installed by energy program certified contractors. Homeowners making those improvements on their own will receive rebates of up to of $250 on insulation products, such as spray foam.

Untapped Resources
However, there may be more here for the program than the $6 billion allocated. A recent survey published by the U.S. Green Building Council has shown that the administration has nearly $72 billion that can be used to increase energy efficiency in commercial buildings and family housing. By leveraging more than 30 existing programs, the president has more than the original proposed $23 billion, without having to ask congress for a single penny. Some ideas from the report include using SBA funding to support small business energy efficiency investments, and improving performance standards applicable to federal buildings and leases.

Still a Portfolio Play
While the initial buildup of the Cash For Caulkers bill as come and gone, with last winter's hype of what could be, the idea of investing in energy-efficiency companies makes sense as a long term trend to add to a stock portfolio. There are several companies that should benefit, regardless of any legislation as consumers look to save money on energy costs going the round. Here are a few picks that should continue to profit from this trend.

While the housing crisis has taken the wind out of home improvement retailers sails, both Lowe's (NYSE:LOW) and Home Depot (NYSE:HD) are obvious choices to directly benefit from both contractor and homeowner spending. Affordability, is one of the hallmarks of the bill and some of the products, like cans of spray foam, can be purchased by homeowners for as little as $4, from these locations.

The maker of Post It notes, 3M (NYSE:MMM) is also one of the largest manufacturers of energy efficiency products, including the previously mentioned spray foam. Products also include easy installing window films that attempt to reduce the heat lost through windows. Shares of the company pay a 2.5% dividend.

Adding energy efficient lighting to an existing building is an easy way for both homeowners and commercial real estate operators to reduce overall costs. Both General Electric (NYSE:GE) and Philips Electronics (NYSE:PHG) represent the leaders in the compact fluorescent bulb market. However, in LED bulbs, Cree (Nasdaq:CREE) is quickly becoming the superstar. The prices of these lights have dropped considerably over the course of the past few years, making them affordable for homeowners. As the price has dropped, Cree's stock has taken off, climbing to near $80 from a low of $25 in the past year.

Johnson Controls (NYSE:JCI) has moved away from its automotive industry image by quickly becoming the leader in retrofitting older buildings with energy intelligent HVAC systems. Past projects include retrofitting the famous Empire State Building, leading to significant cost savings for the owner/operators. Johnson Controls should continue to see its earnings blossom as it shifts more towards it green offerings.

The Bottom Line
While the current Cash for Caulkers bill on the table pales in comparison to original proposal, it still represents a great long-term trend for a portfolio. The Obama administration still has many tools at its disposal to make the bill a reality. Rebates and loan guarantees aside, the previous companies should see increased profit, as more consumers look to save on their energy costs and retrofit their homes. (For more, see Cash In On Cash For Appliances.)

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