Selling Itron, Buying Intel; Eye on Macworld and Apple

This week we bade farewell to 2007, which started on a relatively uneventful note, but whose second half ended with the earthquake that shook the financial sector to its foundations. Last Thursday we were given a stark reminder that political assassinations are still around. Considering that a good many investors have diverted substantial funds to emerging markets in the East over recent years, Benazir Bhutto's murder is a reminder that these regions are rife with danger and surprises, and China and India are no exception.

Two important events could also overshadow the second half of 2008. The main event in the East in 2008 will be the Olympic Games opening in August in Beijing, China. I have already heard one big institutional investor in the US express fear of what could happen in financial markets worldwide, in the event that the Olympic Games do not run smoothly, whether as a result of poor organization, political demonstrations in the mold of the Tianamen Square protests of 1989, or terrorist attacks. The key event in the West will be the US presidential election in November, where the choice of candidate to spend the next four years in the White House will have a pivotal impact on taxation, defense spending, healthcare, and other issues.

The upcoming results season will kick off, as usual, with Dow Jones-listed aluminum conglomerate Alcoa Inc. (AA), which will report on January 8. The more interesting results of the big tech companies will start coming through on January 15 with Intel Corporation (INTC), with other giants, such as Apple Inc. (AAPL), Yahoo Inc. (YHOO), eBay Inc. (EBAY), and Microsoft Corp. (MSFT) reporting a week a later.

There won't be a dull moment in the markets between this week's publication of key macroeconomic data and the start of the results reason in the middle of the month, since as is the case every year, January will also see two exhibitions, alongside numerous high profile technology conferences.

On the evening of January 6, in keeping with a time-honored tradition, Bill Gates will open the 2008 Consumer Electronics Association Tradeshow, which from January 7 through January 10, will showcase the hottest new gadgets for 2008 from companies worldwide, save for the one, which will, without doubt, be the most important of all this year - Apple Inc.

The second event is Apple's Macworld Conference and Expo. This year, at least, it will not coincide with the CES exhibition in Las Vegas, but instead will open a week later on January 14 in San Francisco. This was the venue where, a year ago, Steve Jobs first unveiled the ground-breaking iPhone handset, although its commercial launch did not get underway until June.

The interesting thing is that Apple's share soared to a high of $97 from $85 on January 9, the day the handset was first unveiled, following which it immediately came under pressure in keeping with the customary practice of "sell on the news." By a few weeks later, it had slipped to a low of $83. Those investors, who scorned the iPhone's potential and sold their shares, will now be trembling at the prospect of having to buy them back at a price of $200.

As is the case every year, investors and Apple aficionados will once more be eagerly awaiting the evening of January 15 when Steve Jobs will once again conjure up new gadgets from within the pockets of his jeans. As far as is known, the conference is unlikely to see the launch of a more advanced version of the iPhone, which when it is finally launched in the summer, will be probably come with 3G communications technologies. The rumors this time center primarily around one device that Jobs will not be able to produce from his pocket - an exceptionally small laptop with Solid State Flash-based hard drive.

In my final move for the year in my portfolio, tracked by "Globes", I am adding Intel Corporation (INTC) in place of Itron Inc. (ITRI), which has produced a 56% return for me since March. Itron is an excellent company operating in an infrastructure field that is now booming - state-of-the art meters for the measurement of electricity, water, and gas consumption, but I suspect that the value it has reached is excessive.

Itron rebounded from a low of $75 in recent weeks, ending Friday's session at $98.70, a multiple of 30 on 2008 earnings. The reason for the over 30% gain in two weeks, so it appears, is a massive order the company recently won from Californian energy company Southern California Edison (ED), an order that will have a marked impact on its results for 2009. This share has a tendency to take a tumble when the markets are in a crisis, so I will wait for the first crisis to hit before returning to it.

Intel needs no introduction, and I have already said repeatedly in the past that it is one of the companies that stand to gain the most from the fact that consumers are buying more laptops and less desktops. The company makes a far bigger profit on processors and related components for laptops, and as 2008 begins it is in good shape with low inventory levels and advanced production capabilities that will ramp up its gross margins. Some analysts expect not only a strong fourth quarter, but also that the company will surpass market expectations in the first quarter of 2008.

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

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Ticker symbol for Southern California Edison is EIX (Edison International is the parent co of SCE).