Mad Money Breakdown

Last night on Mad Money, Jim Cramer recommended Itron, ITRI for the coming infrastructure money that will be spent on the new smart grid electrical system in the United States. Our concern about Itron is the it's profit margin is less than 1% and it's operating margins are only 3.9%. On valuation, ITRI trades at a 181 P/E on trailing earnings. This means that we need to believe them when they forecast that they will earn much more in the future for their forward P/E of 17 to be accurate. Now, if they do this...then you're talking about HUGE earnings growth and being there now means you'll be there to see the stock rise. We don't have concerns about their balance sheet as they have $6.90/share in cash. That's a big pile and I bet if you backed the cash out the P/E would be more attractive. They are only levered about 1 to 3. That's very low leverage ratio compared to other companies you could own.

Why we are out here talking about Jim's recommendation is because it popped up on a price gainers list we get 3 times a day that also highlighted SVT (Servotronics) as being in the same industry segment. SVT only trades at a 6.65 P/E and actually has a 2% dividend to boot. Profit margins for SVT are 7.18% and operating margins are 10.59%...far better than ITRI. SVT is seeing Quarterly revenue growth yoy of 17.8% and quarterly earnings up 20.70% yoy. They are levered nearly 1 to 1. They have 3.14 million in cash and 4.13 million in debt so the ratio is extremely low. They have $1.62/share in cash which is a huge percentage of their only $7.89 stock price. The dividend is only $0.15 so it's more than covered. Only 5.8% of institutions own it by it's held by 66.58% of Insiders so we know they like their story.

In comparison, Itron is owned by only 0.56% of Insiders and 97.20% of Institutions. My guess is that's how it got to trade at 181 P/E and if they don't do what Jim Cramer thinks they will...there are a whole lot of people out there to sell the stock. Look there are good things about owning both stocks...but on valuation, we think Itron is expensive and SVT is right to be bought. Use limit orders because SVT trades VERY thinly and can probably be bought for $7.70. Why try to get it $0.19 lower, well with this stock, that's the entire price of the dividend.

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