3 Breakout Stocks Shine

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Bryan Ashenberg joined NBR to highlight mid-cap stocks with breakout potential. (Watch video and read transcript here.)

With earnings season nearing an end, we are taking this opportunity to highlight three of our favorite Breakout Stocks model portfolio holdings. We will examine how they are positioned to grow within their respective industry, based on secular growth drivers and company-specific levers and initiatives that should allow the stocks to become solid investments.

First up is OmniVision Technologies ( OVTI), which is a leading designer and marketer of high-performance, semiconductor image sensors for mass-market consumer and commercial applications. The company is benefiting from the huge trend of incorporating image sensors (and, increasingly, two image sensors) in wireless mobile devices.

In its recently reported third quarter, OmniVision generated 72% of its sales from handsets, and we expect the company to continue seeing robust growth based on to the explosion in demand for smartphones. The combination of social media with mobile devices is creating increased demand for higher-quality image sensors, which, ultimately, should bring greater profits to OmniVision's bottom line. This stock is an excellent way to capitalize on the proliferation of image-capable, digital devices.
Word on the Street

Next, Crocs ( CROX) is a footwear designer, manufacturer, marketer and retailer based on its proprietary closed-cell resin, "Croslite," which allows the company to produce lightweight, nonmarking, slip and odor resistant footwear. While carefully managing its expenses, Crocs is aggressively expanding its selection, its geographic footprint and its direct-to-consumer reach.

This isn't your father's clogs company anymore, as the company's core products represented just 18% of fourth-quarter sales, while new products (those introduced in 2010) represented 31% of sales. Crocs has over 250 styles of shoes, which has allowed the company to enjoy increasing its average selling price. The company posted better-than-expected fourth-quarter results a few weeks ago, and we believe the company's fundamentals warrant a higher stock price.

Last, Perficient ( PRFT) is an information technology (IT) consulting firm that serves Global 2000 and enterprise customers throughout the U.S. As macroeconomic conditions improve, the company will likely benefit from the release of the pent-up demand for discretionary IT purchases. Perficient is demonstrating healthy margin growth, and we expect positive operating leverage to allow the company to grow its earnings faster than its revenue growth in the next few years.

Management recently commented that the company's bookings were very strong and that this momentum had carried over into 2011. In fact, management recently reported that during the past three months (ending February), 25% of the projects the company booked were from new customers, which is an excellent harbinger of future growth. We find the stock to be an excellent, small-cap play on the re-emergence of IT consulting.

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In keeping with TSC's editorial policy, Bryan Ashenberg doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback; click here to send him an email.

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