This column was originally published on RealMoney on March 29 at 12:59 p.m. EST. It's being republished as a bonus for TheStreet.com readers.
As I was looking through my watch list, I could not help but notice that
looks like it's setting up for another run. This is a stock that first broke out in March 2005 through $24, trading straight up to about $54. Then, as luck would have it, Itron did exactly what I hoped it would: It took a rest, by correcting and bottoming to around $38, followed by sideways-to-up trading back to the upper $40s over the course of seven months.
When stocks have big moves, as Itron did, they need to take a rest in order for the gains to be digested. This period of consolidation is necessary if further moves are to be sustainable.
On Feb. 14, Itron gave the market something it obviously liked, judging by the stock's reaction. The company reported fourth-quarter earnings on an adjusted basis of 59 cents per share, compared with 33 cents from the same quarter a year ago, when Thomson Financial was looking for only 42 cents per share. Itron also gave a positive forecast for 2006, saying it expects revenue between $605 million and $615 million, a significant increase over 2005's $552.7 million and 2004's $399.2 million.
These data points resulted in the stock gapping up to new highs near $63 on big volume. With the stock trading near $60 again, a breakout of the current post-gap trading pattern -- which looks like a bullish flag formation on a longer-term basis -- appears imminent. It's worth noting, too, that the recent moves have expanded its market cap to $1.5 billion.
The fundamental trends in play for Itron back up the company's bullish view. It operates in the global energy and water industries. Utilities worldwide rely on Itron for its award-winning technology, which helps optimize delivery and use of energy and water. The company basically provides meter technology to utility owners, which helps them collect and analyze data about customer usage.
The Picture of Strength
Given that we are looking at all-time highs, there is no overhead resistance to worry about. Itron also maintains an
Investor's Business Daily
EPS ranking of 91 out of 100, a very strong rating.
One more factor to consider is that Itron is 28.4% overvalued, on the basis of the ValuEngine model. I find that overvaluation ratings are very helpful when considering whether to sell. They can give a very strong reason for taking profits on weakness.
However, when considering a buy, overvaluation should not necessarily keep you out of the stock, because stocks will continue to be overvalued as they continue to go up. I prefer to go along for the ride, while keeping my finger firmly on the trigger in case selling is needed -- that is, if the stock's price action indicates a trend reversal.
I still believe there is continued upside potential for Itron, on the basis of the strong technical pattern currently forming. Any break above $63 on volume of more than 500,000 shares would signal a good time to buy Itron. For such an entry, I'd use $50 as a stop because of the gap up on big volume through $50 in mid-February. Any drop below this level would signal a reversal of the trend.
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At the time of publication, Soni had no position in any of the securities mentioned in this column, although holdings can change at any time.
Michael Soni is president and CEO of Cronus Capital Markets where he developed the benchmark ISE-CCM Alternative Energy Index (POW), ISE-CCM Homeland Security Index (HSX) and ISE-CCM Nanotechnology Index (TNY) in partnership with the International Securities Exchange. Prior to founding CCM, Soni managed money at Scotia McLeod. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Soni appreciates your feedback;
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