Part of our process of finding undiscovered stocks involves monitoring consumer trends to find little-known companies poised to benefit from those trends -- and right now there is enormous consumer demand for handheld gadgets, from MP3 players to next-generation cell phones.

We researched these devices to identify companies that supply the manufacturers, and our top pick is International DisplayWorks ( IDWK), which manufactures small liquid crystal display (LCD) screens for these devices.

International DisplayWorks was recently trading at $5.55, and we're adding the stock to our watch list. We will consider taking a position in IDW once we free up money in the model portfolio for a speculative position and get some clarity from the company's management team about its turnaround efforts. That said, risk-tolerant investors should consider taking a small position in IDW now with the caveat that the position may take several quarters before potentially producing a double-digit percentage return.

We like the momentum of the LCD business. Although LCD panel prices have been declining -- technology Web sites are speculating that Wal-Mart will offer a 32-inch LCD television that is priced below $1,000 for the holidays -- International DisplayWorks' niche is small screens for consumer electronics devices.

This segment is experiencing enormous volume growth for everything from MP3 players and cell phones to portable navigation and medical devices. We expect this volume growth to more than make up for falling prices in the coming few quarters and allow International DisplayWorks to trade higher as a result.

The company's shares are depressed right now -- off some 37% in 2005 -- due in part to a recent disappointing earnings report and forward sales guidance that was much weaker than the Street was expecting. For the fiscal third quarter ended in July, International DisplayWorks reported sales of $23.6 million and earnings of 3 cents a share.

Although this was a 103% top-line increase from the 2004 period and marked the company's ninth quarter of sequential revenue increases, the Street was looking for sales to come in closer to $25 million. Making matters worse, International DisplayWorks said its fiscal fourth-quarter sales should come in between $22.5 million and $25 million, quite a drop from its previous revenue guidance of $40 million for the quarter.

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