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


(KEM) - Get Report

, 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) - Get Report


Vishay Intertechnology

(VSH) - Get Report

. 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.

In April 2005, Per-Olof Loof replaced Jeffrey Graves as Kemet's CEO. Loof already had experience in turning around businesses, notably at Sensormatic Electronics and


(T) - Get Report

. And since his hiring, Kemet has not only returned to profitability -- implementing cost-cutting measures such as shifting production to low-cost areas and announcing layoffs -- but is expanding its international presence as well.

Then in May this year, Kemet purchased Epcos -- a tantalum (a very hard, heavy metallic element) component company that has a strong presence in Europe -- for $103 million. This looks like a very good move as the acquisition complements Kemet's Asia and North American operations, giving the company access to two growing European markets -- automotive and telecom.

Other catalysts that could ignite shares are the recent decline in energy prices and higher consumer sentiment. Oil prices are well off their highs and with the Dow Jones index trading near a record, we could see a rise in consumers' discretionary spending, which will eventually filter down to Kemet.

Best Buy and Circuit City have recently announced a surge in demand for high-definition flat-screen televisions; plus, Kemet's capacitors are used in almost every electronic device sold in these stores as well. In addition to TVs, we believe iPods, game consoles, GPS navigation systems, and 3G mobile phones with the latest wireless technology will fly off the shelves now that the holiday season is just around the corner.

Last, Kemet's list of customers is impressive. Names like


( MOT),


(BA) - Get Report



(CSCO) - Get Report


Arrow Electronics

(ARW) - Get Report



(IBM) - Get Report

-- just to list a few -- enhance Kemet's credibility in the capacitor industry as these are some of the largest and most-respected companies in the world.

While the company's cost-cutting measures and increased demand for products could push the stock higher, there are also risks to consider. Kemet's raw material costs may fluctuate if supply for tantalum becomes tight, which could hurt margins over the longer term.

Also, the capacitor industry has struggled to control inventory levels. At the moment, inventories are very high, and if demand slows, excess inventory could push shares lower.

Kemet has a market capitalization of $720 million, annual revenue of $550 million and trades at just 15 times next year's earnings estimates -- much lower than the industry average of 25. According to Capital IQ, earnings are expected to grow at an annual rate of 13% over the next three years, but we believe this estimate discounts the huge demand for consumer electronics products including new game consoles that will be out later this year.

Kemet's position as a key player in the capacitor market puts it in a sweet spot to benefit from that growth, and we believe that shares are attractive at the current price. However, Kemet is scheduled to report second-quarter earnings Oct. 26, and we prefer to wait on the sidelines until after the report.

In keeping with TSC's editorial policy, Frank Curzio doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Frank X. Curzio is a research associate at TheStreet.com, where he works closely with Jim Cramer and and writes

TheStreet.com Stocks Under $10

. Previously, he was the editor of The FXC Newsletter and senior research analyst for Greentree Financial, and passed his Series 7, 63 and 65. He appreciates your feedback;

click here

to send him an email.