3. Vimicro International (VIMC - Get Report) designs, manufactures and sells semiconductors in China. Specifically, it is the leading chipmaker for PC webcams and has enjoyed several design wins for mobile phones, which are rapidly proliferating.
The company also has a unit focused on surveillance camera chips. Although recent losses have hurt Vimicro's stock (it is down 31% in 2010), Morningstar expects a return to profitability in 2011, with an operating margin in the low- to mid-teens. A major issue is the lack of intellectual property enforcement in China, which threatens Vimicro's market share. Also, the semiconductor industry is subject to technological obsolescence and sharp cyclical swings.
Morningstar values Vimicro at $7 with a residual income model, implying the stock could nearly double.