It’s not cheap, but if you’re like me, you’ve gotten used to it. It’s only when my wife and I pack up the kids and leave Massachusetts to visit family in New York, which has higher gas taxes, that I get a frisson of price shock–gas on Long Island is 27 cents pricier.

This got me thinking–what is the chance that we’ll see fresh gas price shocks, driven by more than crossing over into another state with higher fuel taxes? Analysts at McKinsey wondered the same thing recently, and analyzed the market to see what lies ahead.

Over the past decade, world oil demand has grown about 8.5%, from 77,738 barrels a day to 84,200, according to the Energy Information Agency. The growing economies of China, India and Indonesia have been the primary drivers behind this increase. But while demand has grown, getting more supply out of the ground has been harder.

In fact, capacity has risen only a smidgen over 1% annually. According to McKinsey, there are about three to four million barrels of spare capacity in the world market. Under a “business as usual” scenario, in which the world is much like today and oil doesn’t average over $100 a barrel annually, by 2020 capacity and demand will be equal, at 100 million barrels. That might cause a lot of problems, either quickly or slowly.

The quick problem of nearly matched supply and demand is that any uptick in demand for oil, such as an economic boom, puts pressure on the marginal capacity of the oil industry and sends prices skyrocketing. Look at pre-crash 2008, when prices spiked to $147 a barrel and gasoline ended up at a record $4.11 nationwide that July.

A lack of excess production capacity also means that anything that slices off capacity has far more impact than it should, be it a hurricane in the Gulf of Mexico or saber-rattling in the Persian Gulf.

Then there are the slow problems. Even as gasoline prices have eased off their spring highs, we’re still paying a lot more at the pump, about 22% more than one year ago. The fact that I have adjusted somewhat to the new price of gasoline reminds me of the story of the frog and the hot water.

You’ve undoubtedly heard this before–drop a frog into a pot of hot water and it will jump out. Place the frog in tepid water and slowly heat it up and the frog will sink into a stupor as it eventually boils to death. It’s not true for the frog–which has a very small brain–but it is true of humans; our large brains sometimes fail us.

Under this scenario, slowly but steadily rising oil and has prices continue to commandeer more of Americans’ disposable income, leaving less money to spend on goods and services.

McKinsey (and others) project that energy prices will rise faster than Americans’ income, meaning gasoline could consume 7% of Americans’ income by decade’s end, up from 5.4% in 2008 and 3.1% in 1994. The extra $800 or so that the average person would spend on gas each year then would surely be better spent on something else–as long as it was discretionary.

Now just as the frog will eventually get the picture and jump out, we’re not condemned to slowly suffer from rising energy prices–we can do something about it. That includes discovering more oil, developing viable forms of alternative energy like wind and solar, and affecting the demand equation by boosting energy efficiency and energy storage. As editor of Cabot Global Energy Investor, I see three areas that are particularly worth keeping an eye on as a way to profit from the evolving energy market.

One is the boom in domestic oil and gas resources. I’m especially excited about the Bakken, the geological formation beneath the Dakotas and eastern Montana that may hold as much as 206 billion barrels of recoverable oil. If true it would equal 48 years of U.S. oil imports.

In our Energy Portfolio, we recently sold a producer that was focused on the region–Brigham Exploration–because it was acquired by Norway’s Statoil (STO) for 35.50 a share, giving us a 32% profit in four months. That’s nice, but the Bakken is too impressive for us not to continue to have a hand in it. We added a small, fast-growing producer to our Energy Portfolio this month (I can’t tell you the name because we give our subscribers at least two weeks to buy before we think about disclosing recommendations). We’ll likely add another, larger producer to our portfolio soon.

Another area I think has big potential is energy storage. In particular, lithium-ion batteries, which will play a key part in giving hybrids and electric vehicles even greater ranges and make even traditional cars more energy efficient.

Recently we sold out of a long-time favorite I have mentioned before, Polypore (PPO), which makes high-tech battery membranes. Its chart turned bearish and we decided it was time to take profits–a total of 135% return on our investment in 18 months. At the moment, I’m not thrilled with the universe of battery stocks besides Polypore, but I suggest that you take a look at the world’s largest miner of lithium, Sociedad Quimica y Minera (SQM), a Chilean company we’re had success with before. The trading chart isn’t terribly bullish, and it’s a little pricey at 22 times 2012 earnings but it’s been attracting very good institutional buying action of late–a positive sign.

The third area of great interest to me as an investor right now is alternative fuels. Primarily, I believe natural gas has the potential to be a viable alternative to diesel in the trucking and industrial equipment sector. Already many ports, such as Long Beach, California, require trucks and equipment to be natural gas-powered, because the fuel burns far cleaner than diesel. Natural gas is also abundant in the U.S., relatively low-priced and its price isn’t affected terribly by international oil prices.

A leading firm in the production of natural gas engines is Westport Innovations (WPRT), a Canadian firm that has a very profitable joint venture with truck engine maker Cummins as well as Volvo trucks, Weichai, the leading China heavy equipment maker, and others. While the company has focused on trucks and industrial equipment, it is now expanding into light trucks. Earlier this autumn, Westport inked deals to supply natural gas engines to the Ford (F) F-series trucks and also finalized a venture with General Motors (GM) to develop natural gas engines for GM’s light truck line.

The number of natural gas vehicles on the road worldwide has grown from about one million in 2000 to over 12 million in 2010, an annual growth rate of 26%. In North America, analysis firm Frost & Sullivan expects natural gas fueled trucks to grow to 8% of the region’s truck sales market by 2017, from 1% last year (currently, a natural gas truck costs 20% more than its diesel counterpart). According to the researchers, as long as the gallon equivalent of natural gas is $1.50 less than diesel prices, the extra upfront cost is worth paying. Of late, diesel has been averaging around $4 a gallon, while natural gas trucking firms have been paying $1.65 to $1.80 per gallon equivalent to fuel their vehicles.  That’s a good price dynamic, one that will continues to help Westport grow its $200 million annual sales.

P.S. You can learn more about the energy stocks mentioned above and many more leaders in the sector in Cabot Global Energy Investor. Don’t miss another recommendation! Learn how you can be an early investor in this high-potential area today by clicking here now.

Disney is a formidable presence in the media business, generally growing revenue in the single digits (revenue growth was positive in eight of the last nine years) and paying a small dividend (trailing annual dividend yield was 1.1%). The company manages its vault of classic animated films with canny precision, offering them for sale on DVD only for a limited time and reviving them for theatrical runs as new generations grow into them.

DIS is a generally solid stock that mostly avoids big volatility, holding its value and providing a little income. Right now, the stock is favorably priced, with a P/E ratio of just 14, as the stock is only partially recovered from a five-month correction that included an uncharacteristic over-the-falls decline in late July and early August, when it was dragged down by a powerful market dip.

DIS can be pushed around a bit by quarterly earnings that reflect the success (or occasional failure) of a tent-pole animated feature. But the sheer scale of this diversified company (market cap is nearly $67 billion) reduces the danger substantially.

The rally that has lifted DIS from 28 in early October may need some time to consolidate in the 35 region. If you have a hankering for a bite of The Mouse, you should be able to get in near 34.

The Toyota Prius has become the poster child of the hybrid car movement, leading a growing range of hybrid offerings–including the massive Cadillac Escalade– from nearly every manufacturer.

Pure electric cars are just beginning to emerge, with the Chevy Volt and Nissan Leaf targeting the mass market and Tesla aiming higher.

And as these technologies improve and gasoline and diesel-burning engines are gradually displaced from our roads, the result will be lower pollution, better health and lower oil prices, too.

But investing in automobile companies is difficult, not least because this is a mature industry.

More than four years ago, in September 2007, I surveyed all the publicly traded automobile manufacturers, asking if there were any that were attractive investments, based on either valuation or growth.

And I ranked them from best to worse.

Here’s a much-abbreviated version of my comments then.

“Nissan (NSANY) … having its lunch eaten by Toyota.

“Ford (F) … being killed by legacy costs, … by some measures, it’s a screaming bargain, but only if the company can find its way back to profitability.

“General Motors (GM) … also cheap … but earnings estimates have been cut … and the stock has been weak for most of this year.

“Honda (HMC) … a fine track record of growing both revenues and earnings … but the stock has only equaled the market’s performance over the past five years.

“Toyota (TM) … the most expensive major carmaker in the world, measured by price to sales ratio. Trouble is, it’s performed no better than the broad market over the past 12 years.

“DaimlerChrysler (DAI) … sells at just 58% of annual revenues … and it’s in an uptrend, so it’s probably a decent investment here.

“Tata Motors (TTM) … is a real growth story! … Not as cheap as the preceding companies … but it’s got great growth prospects.

“Volkswagen (VLKAY) … is hitting new highs … both revenues and earnings are on growth tracks … the most successful foreign automaker in China. In short, I like it.”

And how have these stocks done since?

Well, in the short term, Volkswagen was the top performer, climbing 255% from the time of my recommendation to its October 2008 peak as investors fled from American automakers that were nearing extinction. It’s now 27% below that 2007 point and not particularly attractive.

But in the long-term, the top performer has been Ford, which did find its way back to profitability (wisely passing up a government handout on the way), and is up 37% since that week in 2007 (after falling 88% along the way … could you have held on through that?). But the stock is weaker than Volkswagen’s and analysts are predicting reduced earnings in both 2011 and 2012, so it’s not attractive to me.

As to the others:

While all Japanese automakers were hurt by the March tsunami, there are bigger problems. Honda and Toyota are both having their lunch eaten by Hyundai/Kia of Korea. Revenues at both Japanese companies peaked in 2008 and their stocks are in downtrends. And investors in Toyota have lost 45% since 2007; that’s partly a consequence of the stock being the most highly valued back then.

Nissan is slightly better, having posted record revenues in fiscal 2011. But its stock is a yawn.

Daimler looks terrible. Revenues peaked way back in 2005 and the stock is down 52% since 2007.

General Motors looks no better. Revenues peaked in 2006, and the stock has been steadily underperforming the market since the government sold it back to the public a year ago.

In short, the stocks of all well-known automakers are unattractive.

You shouldn’t buy them for the dividends. The biggest payer is Tata, which pays 2.2% per year.

And you shouldn’t buy them for value. None of these companies qualifies for the Top 250 Value Stocks list of Cabot Benjamin Graham Value Letter.

But in the case of two companies, you might invest for growth!

The first is Tata Motors, whose stock has been weak in the recent difficult market, but may have turned the corner. The company has seen revenues grow every year of the past decade, and analysts are looking for record revenues and earnings in 2012. Tata’s after-tax profit margin is a healthy 5.9%. Additionally, the company’s Indian labor force is cost-competitive, and Tata’s ability to sell into that market as the middle class grows is tops. Finally, Tata has a broad product line, ranging from the tiny Nano–the world’s cheapest production car–to luxury cars made by Jaguar and LandRover, which Tata bought from cash-strapped Ford in 2008. So the stock is worth keeping an eye on.

The second, and most exciting company, is Tesla (TSLA), which came public in June 2010 at 17, and is now trading at 34, just 6% off its all-time high.

If you’re into cars, you probably know more about Tesla’s electric cars than I can tell you here, but if you’re not, you should pay attention.

I’ll give you the main points right up front.

While Toyota has blanketed the U.S. with milquetoast hybrid Priuses, following the standard old automakers’ game plan, and the Chevy Volt and Nissan Leaf are uninspiring “appliances,” Tesla has done something different. It has built cars that are thrilling to drive. And from its headquarters in Silicon Valley, it’s been acting like a high-tech company!

And why not, considering that co-founder and current CEO Elon Musk made his fortune by selling PayPal to eBay for $1.5 billion?!

While there are five official co-founders of Tesla, Musk looms large in the story because he used much of his own money to bankroll the project, supplemented in time by money from private investors–as well as $465 million from the U.S. Department of Energy. Last year’s IPO was just the latest chapter of financing, and possibly the last.

From the beginning, the goal of the company has been to create and sell affordable mass-market vehicles that would have a material impact on oil consumption. But Tesla hasn’t yet targeted the mass market!

Its first step was to build and sell two-seat electric sports cars costing $109,000. It’s sold more than 2,000 of these Roadsters (in 30 countries) and will stop after 2,500.

The revenues from that effort are driving work on the company’s next car, the Model S, a sedan that sells for $57,400. Tesla has already taken reservations for more than 6,000, and will begin deliveries next year. It also expects to offer an SUV (Model X) based on the same platform, and begin deliveries of those in 2014.

Photo courtesy of www.teslamotors.com

And the profits from those cars will fund development of a mass-market car, priced around $30,000, that will compete with the likes of the Toyota Camry, Honda Accord and Ford Taurus.

This strategy mimics the way successful Silicon Valley companies launch products; hit the rich early adopters first, then drive costs down to serve the mass market.

Furthermore, Tesla has boosted its cash flow by inking major deals with Daimler and Toyota for its proprietary powertrain systems … which tells me these components are the best!

The company’s revenues were $15 million in 2008, $112 million in 2009 and $117 million in 2010. Next year could bring in $550 million, as the Model S hits the streets. And Musk promises a profit in 2013.

In conclusion, Tesla looks like one of the stars of the evolving automotive revolution.

While recent history has left the roadside littered with old names (Mercury, Plymouth, Pontiac and Saturn are dead, and Saab is comatose), Tesla is a fast-growing young company with minimal debt burdens and no retirees with costly pensions!

So what to do? You could simply buy the stock today and hope for the best. Or you could take a no-risk subscription to Cabot Top Ten Trader, which recommended the stock back on September 26, when it was trading at 26, and continues to update subscribers in each issue.

I recommend the latter, because this stock could be very big, and having expert guidance will help you make the most of it.

For more details, click here.

Silicon Laboratories has been recommended in Cabot Top Ten Trader in 2003 and 2006 and 2009, and investors who stayed on their toes made money each time.  But between each of those periods, the stock fell to the ground like a dead asteroid, as investors exited en masse.

But now SLAB is back in favor, and I think investors who get on here will do very well.

Here’s what editor Mike Cintolo wrote about the company in last week’s issue of Cabot Top Ten Trader:

“With sales of electronic gadgets on the rise, here Silicon Labs is again, with its huge assortment of microcontrollers, wireless transmitters and receivers, touch-sense controllers, sensor, modems, clocks and oscillators and other devices. The company is an innovator, plowing more than a quarter of earnings into R&D, and a wave of new products is helping to lure market share away from the competition. Silicon Labs is a fabless designer (meaning that it partners with world class manufacturers rather than owning its own factories), and sells to China (28% of 2010 revenue), Taiwan (16%), the U.S. (14%) and Korea (13%), with the other 29% scattered around the world. The company’s Q3 results last week beat analysts’ estimates handily, and guidance for the next quarter was solid, putting Silicon Labs near the head of the microchip sector.”

As for the stock, “SLAB got slammed three months ago when management’s overly cautious guidance (plus the early August downtrend in the market) keyed a drop from 42 to 31. The stock hung in there, making small gains in volatile trading, then blasted off last week to its highest level since May. SLAB will likely need some time to consolidate gains at this level, so a dip to 42 or so is likely. That’s an advantageous place to get in.”

Since then the stock has traded as low as 41, and I think you can buy it now, taking care, as with any high-volatility stock, to use protective measures like stop-losses.

For more details on SLAB and other top stocks featured in Cabot Top Ten Trader, click here.

So what happened to solar? In short: China. In 2007 and 2008, when hopes for solar were running high along with the performance of solar stocks, the supply of polysilicon, the primary feedstock for solar panels, was in short supply. That made companies like Evergreen, which had a novel way of manufacturing cells to maximize use of polysilicon attractive–as late as February 2008, Evergreen’s shares were over $100. The shortage of polysilicon also made investments in manufacturing facilities for SpectraWatt and Solyndra seem reasonable.

Make no mistake: no one in the energy industry was expecting the shortage of polysilicon to persist (it is made from readily available sand, after all). But no one expected the reversal from shortage to surplus to happen so swiftly. The number of polysilicon producers in China, for instance, increased from just seven in 2008 to 70 by 2010, according to research firm Trefis Group.

China, with its artificially weak currency, was able to hammer down polysilicon prices and, in turn, solar panel prices. For the typical Chinese-based manufacturer of panels, production costs fell by half in just three years, helped by low labor costs. Even with all of that, it is quite possible SpectraWatt and Solyndra (Evergreen having a larger issue with it’s unique technology) may have survived the much swifter-than-expected price drop, but for the persisting recession.

For the first time in memory, the steep drop in solar prices in 2011 has not generated the leap in solar demand that usually occurs. Last year for instance, demand shot up over 100% after the steep drop the industry saw in 2010, according to the cleantech group at Jeffries & Co. This year, demand is still weak even as prices soften.

This doesn’t mean solar is dead–its falling prices have made it a more viable option to grid-generated power. The demon isn’t necessarily government subsidies either–an International Energy Agency report out this week notes that most government subsidies go to petroleum.

There are still plenty of advantages that mean solar will rebound eventually: for one, its energy source is free. Plus China and Germany, two of the world’s main solar markets, will almost certainly boost their solar usage–China to meet its seemingly insatiable energy demand, and Germany to help fill the void left by retiring its nuclear plants by decade’s end.

And the simple fact is that as any industry becomes more competitive, companies are going to lose, while others will win. But will solar manufacturing have a U.S. base in the future? That’s more difficult to say. Perhaps one indication came from the SpectraWatt asset auction last week. The winner of its full solar panel production line for $5 million: Chinese manufacturer Canadian Solar, which reportedly plans to ship the production line lock, stock and barrel, to China.

Inevitably, when a once-favored sector of the market or a particular stock has been beaten down, I get emails from subscribers asking if now is the time to buy. No doubt some of you are wondering if now is a time to buy into solar. I think that no matter what form the solar market rebound takes, it will require time, as the charts of even the best solar stocks are firmly bearish. Even once solar stocks start recovering, there will be a lot of pent-up selling from those who bought and held when solar was exceptionally strong in late 2007 and 2008.

As editor of Cabot Global Energy Investor, I’ve been out of solar stocks for nearly a year. Our last solar stock in the energy portfolio was sold in November 2010 (Renesola (SOL), at a 54% profit). To get back into solars, I’m going to need to see both a turnaround in the alternative energy sector–which we may be seeing glimmers of as I write–and then a bull move in specific solar stocks. We’ve generally done well with energy investments thanks to our approach of finding fundamentally sound companies that have bullish trading charts. Rather than bottom feeding, we wait for a confirmation that a specific stock has bottomed and turned higher.

This isn’t a new or particularly clever approach. Other newsletters from Cabot have been doing it for decades. I first learned it from some savvy commodity futures traders who rightly recognized that waiting for bullish confirmation of a turnaround was a way to dramatically cut the risk of buying a security. Sure you give up the lottery ticket of buying a stock at its all-time low and enjoying an eye-popping profit. But then again, very often what you think must be the bottom isn’t.

So how do I bottom feed for stocks? I don’t. Let others take the high risk of bottom feeding; I prefer to wait until it’s clear that a rebound is underway. This system got us into that profitable Renesola position last year and kept us from ever getting into Evergreen Solar even as it seemed cheap at 50 just a few months after it fetched 100 a share. My rule of thumb is that you can still capture 75% of the profits, while surrendering 75% of the risk, simply by waiting for the stock to get going before you hop on.

While we wait for solar to rebound, we’ve been selectively investing in strong fossil fuel stocks and a couple of alternative energy stocks in the Cabot Global Energy Investor. But recognizing the dangers in the market, we’ve kept a good deal of our capital in cash (right now, we’re at 60% cash).

Even as we keep our powder dry, there are some macro developments I’m following to guide our featured stocks and recommendations for the next issue of Cabot Global Energy Investor. The most immediate trend we’re is seeing the push toward more efficient and cleaner cars, trucks and industrial equipment really starting to generate some exciting stock investments, at least two of which will be in our October newsletter, available for subscribers only.

One related auto stock that still looks good–although its chart is showing some weakness now–is Polypore (PPO). Best known for making the high-tech battery membranes used in the iPad, its main business is membranes and separators for high tech automobile batteries–and it has been a market leader for the past year.

More broadly, the biggest trend I see is that despite all of the troubles we’ve had and are having–from the European debt crisis, which is roiling the continent’s economy, to the sluggish, perhaps stalling, recovery here in the U.S.–energy demand continues to grow. It may surprise you to know oil prices are well up, on an average price year-to-date, over 2010, and even this week are just about where they were one year ago, around $80 a barrel.

That price strength reflects the reality that world energy demand continues to grow. The U.S. Energy Information Agency released a report last week projecting that world energy demand will rise 54% by 2035, compared to the 2008 benchmark. Projections can be squirrely things, but such growth isn’t out of line with the past. From 1990 to 2008, world energy demand grew about 42%. Because you and I are likely conserving energy and driving more efficient cars, Western world energy demand isn’t going to rise very much in the next two decades.

It’s the developing world, China and India in particular, that will drive this next leg of growth in energy demand. According to the U.S. Energy Information Agency, those two countries alone will drive half the world’s growth in energy usage by 2035. And unlike the past decades of growth, the future will be heavily reliant on new forms of energy, like solar, as well as unconventionally tapped natural gas and oil from places like North Dakota, the Arctic, western Africa and probably some places none of us have heard of by companies that have yet to go public.