Tech Firm Kemet Eyes a Comeback

Editor's note: This Stocks Under $10 alert was originally sent to subscribers Oct. 24 at 8:03 a.m. EDT. It's being republished as a bonus for TheStreet.com and RealMoney.com readers. Frank Curzio heads TheStreet.com Stocks Under $10 Investment Team.

---

Rummaging through the bargain bin can turn up some interesting ideas. One of these is Kemet(KEM Quote), which traded as high as $11.50 in May but is now around $8.17. We believe the sharp drop gives this inflection point play -- a company that has a broken business model that's on the mend -- a favorable risk/reward profile, and we are adding Kemet to our Stocks Under $10 Watch List.

The company is a leading producer of capacitors, a component that is used in almost all electronic devices -- ranging from automobiles, cell phones, computers and televisions to virtually anything electronic that turns on or off. Kemet sells its products to electronics original equipment manufacturers (OEMs), electronics manufacturing services providers and electronics distributors worldwide.

The capacitor market is estimated to be $12 billion to $13 billion this year, and sales are expected to grow 7% to 9% annually, according to Jefferies, an investment firm that specializes in midtier companies. The market is currently dominated by three players -- Kemet, AVX(AVX Quote)and Vishay Intertechnology(VSH Quote). However, consolidation can't be ruled out, and that number could fall to two.

Based on market capitalization and market share, AVX and Vishay are larger than Kemet, and both stocks have performed much better over the past year. But Kemet is taking steps to revive its business, and we believe the stock could move higher on its strength in management, cost-cutting measures and potential increases in product demand.