Creative fixes for US finances

Venture capital pools, microloans, grants

So what about some other outside-the-box ideas to help the economy?

• How about something to make it easier for entrepreneurs to create new businesses and new jobs? I've talked to two entrepreneurs in the past couple of days who tell me that risk capital, the money they need to raise to get their ventures off the ground, has just about dried up. So what about setting up state venture-capital pools -- or increasing the funding for existing pools -- using the existing venture-capital infrastructure at state and private research universities to invest in the companies that will create jobs?

• As I read the U.S. economy of the next decade, new jobs are going to be in short supply. Why not borrow the idea of microlending to one- or two-person family businesses that has become such a successful tool for economic growth in the developing world? The loans would have to be bigger than the $200 or so that can let a woman in Bangladesh buy a sewing machine and set up a small clothing business, but how about if the government linked a microbusiness loan program with education loans? The goal would be to offer someone who learned a skill during two years of community college the capital to start a business.

• Or how about a program that killed two (or three) birds with one stone by giving consumers direct grants to spend on energy-efficient lighting or energy-efficient washing machines or refrigerators? The idea would be to cut U.S. energy consumption, to permanently reduce household utility bills (so consumers could spend less on energy and more on something else) and to help jump-start demand at businesses producing those products. Some utilities already have experience in running programs like this for their customers. Government funding would enable them to reach millions more households.

Why have we seen so little in the way of outside-the-box thinking in this crisis? The companies and CEOs, the lobbyists and the politicians they lobbied, the regulators and the industries who control the regulators would like to come out of this crisis with at least as much power as they had when it started. The solutions offered so far are business as usual, because preserving the status quo while ending the crisis is their goal.

But you know what? I'm tired of "solutions" in which I take the risk and others -- banks, insurance companies, CEOs, asset managers -- reap the rewards. I'm tired of "solutions" that, as the saying goes, "privatize the profits and socialize the losses."

Now is the time to put the conventional wisdom away and think outside the box.

Developments on a past column

"Wait out a weird stock market": Shares of Itron (ITRI, news, msgs) fell about 50% from Aug. 28 through Nov. 4. I understand the fears that drove the decline.

Itron supplies handheld meter data collection systems, automatic meter reading software and hardware, and hardware and software for advanced metering infrastructure to 3,000 electric, gas and water utilities around the world. The fear is that with the economy in the tank and utilities seeing rising customer defaults and falling profits, the utilities would pull back on their plans to deploy vast numbers of new smart meters.

In addition, Itron had taken significant debt in its $1.7 billion acquisition of European meter maker Actaris Metering in April 2007, and right now the financial markets are worried about any company that might need to raise capital. And finally, about 50% of Actaris' revenue is denominated in euros. That helped boost Itron's revenue in the first three quarters of 2008 as a strong euro turned into more dollars on the company's income statement. But with the dollar's big rally against the euro in September and October, the fear was that currency exchange rates would now take a bite out of Itron's revenue.

There's some truth to all these fears -- but not enough truth to justify a 50% drop in the stock or to make me sell the shares out of Jubak's Picks. In its Oct. 29 conference call, Itron said that only one customer had, as of the end of September, decided to delay its rollout of new metering systems. The rollouts at Southern California Edison, San Diego Gas & Electric, DTE Energy (DTE, news, msgs) and CenterPoint Energy (CNP, news, msgs) are all on schedule, with the bulk of revenue still set to be booked in the second half of 2009 through 2012. Books of $894 million in the quarter were up 103% from the second quarter.

On the balance sheet front, Itron has used strong cash flow to pay down $460 million in debt since it acquired Actaris, and the company was, as of the end of September 2008, already in compliance with its loan covenants for 2009. The company has announced very conservative targets for earnings growth in the low to middle teens in 2009. Standard & Poor's projects operating margins will climb to 13% in 2008 and to 14% in 2009 from 11% in 2007.

Still, fear has a cost in this market, and price-to-earnings multiples for all stocks are down. Itron recently traded at 1.5 times book value; the 10-year average price-to-book ratio for Itron is 2.8.

As of Nov. 7, I'm setting a target price of $70 a share by October 2009 for Itron. (Full disclosure: I own shares of Itron in my personal portfolio.)

Meet Jim Jubak at The Money Show

MSN Money's Jim Jubak is among more than 50 investing experts gathering through Saturday for the fourth annual Money Show Washington, D.C. This elite group will present more than 170 free workshops to help you prepare for changes in the political landscape. Admission is free for MSN Money users. To register, call 1-800-970-4355 and mention priority code 009554, or visit the Money Show Washington, D.C., Web site.

Can't make the show? Jubak's presentation, "The next big thing: electric utilities," will be webcast live at 10:30 a.m. ET Saturday. He'll also appear with fellow MSN Money experts Jon Markman and Tim Middleton on a panel discussion immediately following at 11:45 a.m. Click here to register, then return to see the events.

Editor's note: Jim Jubak, the Web's most-read investing writer, posts a new Jubak's Journal every Tuesday and Friday. For the duration of the financial crisis, he will publish a third column whenever he gets really, really angry. Please note that recommendations in Jubak's Picks are for a 12- to 18-month time horizon. For suggestions on helping navigate the treacherous interest-rate environment, see Jubak's portfolio of Dividend Stocks for Income Investors. For picks with a truly long-term perspective, see Jubak's 50 Best Stocks in the World or Future Fantastic 50 Portfolio. E-mail Jubak at jjmail@microsoft.com.

At the time of publication, Jim Jubak owned or controlled shares of the following company mentioned in this column: Itron. He did not own short positions in any company mentioned.

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