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We are adding Microsemi ( MSCC) to our Watch List of stocks. Shares currently trade at $23.34, and we would consider using weakness closer to $20 a share to initiate a position. In the meantime, we will continue to monitor this company and pounce should its potential risk/reward increase in the near term. Microsemi is a leading provider of analog and mixed-signal integrated circuits. The company's core competency, its power-management chips, is built on the ability of its chips to control voltage surges and reduce power consumption in products that require a steady state of energy, such as heart devices and notebook computers. We like Microsemi's long-term growth prospects as the company is leveraged to multiple strongly growing segments of the economy. Specifically, some 17% of its revenue comes from its medical-devices business, which focuses on implanted cardiac defibrillators (ICDs). Also, the company is making headway in the liquid crystal display (LCD) market, where its chips can be used to lengthen the life of a flat-panel display because of an extended battery life. This division makes up 15% of its total revenue. Last, the company sells its products to the U.S. military for communications devices used in the cockpit of fighter planes and other equipment, a segment that accounts for approximately 44% of the company's total revenue. Even so, the near-term prospects for Microsemi's end markets lead to a cautious stance on the company's earnings potential. The ICD market has had its troubles recently due to product recalls from Guidant, which was acquired by Boston Scientific ( BSX) in April, and from Medtronic ( MDT). Also, the major ICD manufacturers have had higher-than-industry-average inventory levels of late, which likely led to a pause in orders to Microsemi over the past few months. With respect to the recalls, problems with the defibrillators that are disclosed on the Federal Drug Administration (FDA) Web site include a shorting defect that occurs in some ICDs. While this is a near-term negative for Microsemi, we believe the company has an opportunity to sell its power-control management products as a solution that would comply with any future FDA regulations regarding ICD batteries. In addition, new FDA regulations to ensure that ICDs do not fail would likely increase the amount of technology needed in each device, and thus the dollar content per ICD that Microsemi can address. This would create a larger market opportunity for future sales growth. Even so, the recalls have created some near-term uncertainty in the ICD market and lengthened the FDA-qualification process for new devices to receive market approval.