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Investors with a penchant for growth often look right past the utilities sector. Utility stocks are typically slated as conservative, defensive stocks for income-oriented portfolios. Utilities offer higher yields and have a history of raising rates to at least pace inflation. Indeed, for 2012, the sector averaged a 4.1% dividend yield.

Unfortunately, as far as price appreciation, the utilities sector was the worst-performing sector last year losing 2.9% compared to the S&P 500 Index gain of 13.4%. It is not unheard of for the worst-performing sector in one year to be one of the best-performing sectors the next. But, if relying on that isn't appealing, there are a handful of appealing U.S.-based companies akin to the utilities sector.

The group is in the smart meter business and offers international exposure to the growth story of global energy efficiency. Itron Inc. (NASDAQ:ITRI) offers comprehensive smart meter solutions to electric, natural gas and water utilities worldwide. ESCO Technologies (NYSE:ESE) produces and supplies engineered products and has a smart meter segment. Honeywell (NYSE:HON) and General Electric (NYSE:GE) have also established strong metering businesses. As well, there are successful private companies in the smart meter business and it is likely the industry will start to experience consolidation.

So, why would a growth investor care about the smart meter industry? Utility companies in the United States are regulated leading to predictability and stability. So, operational efficiency is the key focus and initiative. When looking beyond U.S. borders at the utilitarian world of water, gas and electric, the international landscape is startlingly more varied. Reliable utility services are necessary for a country's development. Clean water, sanitation, lighting, heating, cooking, communications - it all depends on access to energy. Increasingly, governments are paying attention to energy policy and energy efficiency.

Both domestically and internationally, near-term growth outlooks are sketchy for utilities. Yet, longer-term, a different theme emerges. According to the World Energy Outlook from November, 2012, emerging economies and shifts in living standards will account for a 70% increase in demand by 2035 for electricity and power. It is estimated there is still two times the potential for energy-efficiency between now and 2035. If that potential were accomplished, energy demands in 2035 would be halved.

Regarding today, though, there are still 1.3 billion people worldwide without access to electric services. Electricity theft is an all too common and very dangerous problem. It is estimated utility companies in Asia, Africa, and Russia may be losing 50% of revenues due solely to the theft of electricity. Fresh water, long considered a resource that can be replenished, is garnering worldwide attention as a finite and diminishing resource.

Smart meters offer two-way communication between the utility company and the consumer's meter. They eliminate manual processes, track consumption, allow for smart grid analytics and can deter energy theft. In Europe, carbon reduction strategies are driving smart meter growth. By 2022, a mandate exists to install smart meters at every home. An 80% completion rate is mandated by 2020. Individual countries in the EU are setting even more ambitious targets. Project estimates calculate five years will be needed for the largest utility companies to roll out the meters. Start dates are estimated for 2014. Around the globe, in China, smart meter needs in cities are being driven by the migration of residents from rural locations.

The smart-meter industry is not without challenge. For example, the primary electricity regulator in Brazil just ruled it would be too costly to complete Brazil's plan to install advanced smart meters nationwide. Customers are still expected to request the meters because of the savings. The shift in approach will probably limit the demand to $5 billion through 2020 instead of the previously expected $10 billion. Likewise, in the United States, federal subsidies of $3.5 billion for smart meter installation led to an almost 25% penetration. With the rate of growth now slowing, it is still expected a 50% to 75% penetration rate will be reached by 2016 and 100% by 2020.

Itron and privately-held Silver Spring Networks jockey for the Advanced Metering Infrastructure (AMI) top spot in the United States. Silver Spring only provides the AMI module which is installed in smart meters from other manufacturers. It built its infrastructure for AMI on the IP communications protocol. Silver Spring has the largest domestic meter-connected network.

Comparatively, Itron provides product, data collection, meter management software, analytics software and services for the smart meter industry worldwide. Itron has a strong foothold in Europe and is also expanding into Asia and Latin America. Itron products are classified as standard, advanced and smart meters. Besides meters, Itron manufactures smart modules, smart cards, handhelds, mobile devices and other technology products. By Itron's classification, advanced metering provides one-way communication and smart metering provides two-way communication. Itron has the dominant domestic Automated Meter Reading (AMR) install base of advanced meters that helped it build its AMI base of smart meters and OpenWay system.

Cisco (NASDAQ:CSCO) and Itron then partnered to deliver an IP-based platform specifically with the intent of defining standards for the smart-grid industry. The alliance delivers the architecture needed for an intelligent, distributed smart grid coupled with Cisco's quality, secure and reliable networking. The end result is to be a secure smart meter communications network designed for smart grid applications.

Smart grids are meant to enhance monitoring, balance loads, prevent outages, and better manage assets. The challenges on the path to full implementation of smart grid technology include transitioning to new applications and processes, storing and managing the volumes of metering data, and ensuring the security of the data and the network. Some experts believe power distribution and power generation must be separate businesses for smart grid technology and applications to truly be successful. There are also questions about whether the advancement of smart grids will simply enable the demand for more electricity and thereby negate any progress gained.

Though the 2013 outlook for Itron is not expected to be a financial blockbuster, there are compelling reasons for an investor to keep Itron in sight. Itron is about halfway through a restructuring program designed to increase efficiency in its manufacturing operations and lower costs. By year-end 2012, annual savings were expected to be $15 million and by year-end 2013, savings should double to $30 million annually. Itron extended its stock repurchase program through February 15th 2013 or until the $100 million allocated for the program is exhausted, whichever occurs first. Both efforts should bolster shareholder value until the next wave of implementations kicks off. Itron has also proven it is adept at acquiring complementary businesses to solidify its technologies and to broaden its global footprint. Further opportunity for acquisitions should present itself as the industry matures. Having a strong hand in developing industry standards should also prove to be a competitive advantage for Itron.

An investment in Itron or any other company exposed to the smart meter industry and initiatives will not turn a quick buck. Rather, for the investor with an eye toward 2020 and beyond, Itron is a smart one to meter.

Source: Itron - An Uncommon Utility Option

Additional disclosure: I belong to an investment club that owns shares of CSCO.