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Bennett Marks is president and chief investment officer of Marks Group Wealth Management, a registered investment advisor in Minnetonka, Minnesota. Seeking Alpha recently had a chance to ask Ben about his highest conviction stock pick.

To get started, please tell us a bit about your firm.

I began my investment career in 1982 at E.F. Hutton. In 2008, after 26 years on Wall Street, we spun out of a major Wall Street firm as it became increasingly apparent that our client base of high-net-worth families and private foundations preferred objective advice independent from institutions that publish research reports and have investment banking conflicts.

Marks Group Wealth Management focuses on clients with between $1M and $10M in investable assets.

What is currently your highest conviction stock position in your portfolios - long or short?

Our favorite stock is Itron (NASDAQ:ITRI). Based near Spokane, Wash., Itron is the world’s leading provider of “smart meters,” making it a pure play in the “smart grid” industry and a key component of a major theme in our Energy Technology portfolio. We believe that this emerging sector could become the equivalent of the Internet boom of the '90s.

Smart meters are two-way communication devices that allow utilities and customers to exchange data, which ultimately leads to the more efficient use of energy. Itron got its early lead in this niche with AMR (automatic meter reading) meters, which broadcast but don’t receive data. The company's latest technology now allows for two-way communication meters in what’s referred to as the AMI (advanced meter infrastructure) market. Itron also developed the radio mesh technology that has emerged as the preferred way for smart meters to talk to each other in neighborhood area networks, which makes it a contender for many new contracts.

Can you give us a look at Itron's competitive environment?

There are plenty of competitors nipping at Itron's heels. Switzerland's Landis+Gyr and California-based Echelon (NASDAQ:ELON) are strong in Europe, and other smart-meter manufacturers such as Sensus, Elster and General Electric (NYSE:GE) are worldwide competitors.

This space not only demands excellence in manufacturing, but also in data collection and utility software solutions, all areas in which Itron excels. During the next decade, billions of dollars will be committed to companies developing technologies for the more efficient use of energy and natural resources. There will be huge winners and many losers, but in the end innovation and technological advancements will yield significant societal benefits. We believe that our investors in ITRI will be among the winners in the years ahead.

What catalysts do you see that could move Itron stock?

Our country’s power grid system has largely been left alone for the past 50 years. We’re using inefficient grid technology to transmit power across our country, and in the process are wasting precious energy. The U.S. government has committed $3.4 billion of stimulus to investments in smart grid technology in 2010 and beyond. That block of funding was matched by industry and private capital, bringing the total to more than $8 billion. Itron is well-positioned to be a significant beneficiary of these stimulus funds.

Can you tell us about Itron's valuation, in comparison with its competitors?

Although margins have been under pressure from increased competition that ranges from start-ups to multinationals, the company will likely see earnings leverage increase in 2010 and beyond, through well controlled operating expenses and decreased interest expense. Last year the company reduced debt by $397 million. Currently they have $800 million of outstanding debt with an average interest expense of 5.6%. They also had $122 million in cash as of Dec. 31, and plenty of unused credit facilities.

The company recently reported Q409 results and significantly beat street estimates on both the top and bottom lines. Analysts’ consensus three-year earnings growth estimates are around 40% annually. With the stock trading near 20 times 2010 earnings estimates, it’s not inexpensive, but given their dominant market position in this rapidly growing market, we believe there is still significant upside in the stock. Increased M&A activity could also add a premium to this stock as multinationals jockey to buy up pure plays in this niche.

Peer comparisons are difficult since there are no other publicly traded pure plays in this niche. With a market capitalization of $2.81 billion and annual revenues of $1.69 billion, the stock is trading at less than two times sales. This appears to be a reasonable valuation when compared to most growth stocks.

What could go wrong with ITRI as a stock holding?

We must warn that this position is not for the weak of heart. With a beta of 1.53, there are significant short-term moves. We advise that this position be used sparingly in a well diversified portfolio to add some alpha. Rapidly changing technology, increased competition and large contracts with utility companies are carefully weighed risks that need to be considered before becoming a shareholder.

Thanks, Ben, for sharing with us.

Disclosure: Marks Group is long ITRI.

Sources: Itron, Inc. 10-K dated 2/25/10, financial statements, press releases, etc. at www.itron.com.

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If you are a fund manager and interested in doing an interview with us on your highest conviction stock holding, please email Rebecca Barnett.

Source: High Conviction: A Pure Play on Smart Grids