Top Mid Cap Losers From Monday and What to Expect Now

by: Rash Menaria

The following is a list of major mid cap losers from Monday:



% Loss

OmniVision Technologies



BroadSoft Inc



Targa Resources Corp



Power Integrations



Here are some specifics about these stocks and what to expect from them going forward:

OmniVision Technology (NASDAQ:OVTI), a designer, developer and marketer of semiconductor image sensor device, fell over 7% in trade as Sony’s (NYSE:SNE) CEO indicated that the damage to Sony’s Sendai Plant would delay image sensors supplies to Apple Inc (NASDAQ:AAPL). Apple has so far sourced cameras only from OmniVision, suggesting that Sony was shipping for a future model. The statement from Sony’s CEO validates much talked about speculation that Sony is eating into the incumbency of OVTI at Apple.

Although this is a slight negative for OVTI, we believe stock reaction was overblown. Even if Apple is dual sourcing, OVTI might still be allocated a disproportionate share of production vis-à-vis Sony. There are several factors helping OVTI, like capacity advantage, technology leadership with 8MP BSI-2, geographic proximity to iPhone 5 assembly plants in Taiwan, etc. Further, any delay in supplies from Sony to Apple due to the recent Japanese earthquake will help OVTI. In fact, the stock has been gaining lately as crippled production ability of Japanese image sensor makers is likely to cause additional orders for OVTI establishments in Taiwan. OVTI is available at a reasonable forward P/E valuation of ~12.5x-13.5x and is likely to outperform going forward.

BroadSoft Inc (NASDAQ:BSFT), a provider of residential and business voice over Internet protocol (VoIP) application software, fell over 4% in trade as investors booked profits. The stock has soared over 60% in last couple of months on value buying and better than expected results. The stock looks expensive with P/E over 46x forward earnings, but when compared to an EPS growth of 70-80% the PEG is still below 1x. The company has shown a significant improvement in margins in FY10 and still has a lot of scope for improvement given management's commitment to achieve 24-26% margins (FY10 margins at 14%). Fundamentally, the company is likely to see a multi year secular growth from the overhaul of legacy TDM voice networks. We believe the stock is likely to outperform going forward.

Targa Resources Corp (NYSE:TRGP), a company providing midstream natural gas and natural gas liquid (NGL) services in the United States, fell close to 6% in trade due to profit booking. The stock has risen over 25% YTD on the strong outlook for natural gas. The stock is an analyst favorite with 3 out of the 6 analysts tracking the stock giving it a ‘strong buy’ rating and the remaining 3 rating it a ‘buy’ with an average target of $35/share. The stock provides a leveraged play on the natural gas fundamentals. However, at current levels, the stock seems to be fairly priced and one should wait for some more correction before taking any long position.

Power Integration (NASDAQ:POWI), a designer and manufacturer of high-voltage and analog integrated circuits (ICs) for use in high-voltage power conversion, fell over 2% in trade on continuing concerns about its Japanese operations. The stock has fallen close to 20% since the March 11 earthquake as the company has 3 fabrication facilities in Japan and its Honshu factory is facing production difficulties due to power outages.

However, the production shortfall can be made up by exploiting idle capacity at other plants. The Japanese market accounts for roughly 6% of company’s sales and is likely to have a small impact in the near term. The stock provides investors a good play on the LED technology revolution. Going forward, the company is expected to gain from its power conversion products and energy efficiency solutions. Japan headwinds could cause further selling pressure in the stock in the near term. However, the stock looks cheap at ~16x forward P/E; any correction should be used to accumulate the stock to achieve significant returns in the medium to long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.