It’s time to write the obituary for traditional cell phones. Apple (Nasdaq: AAPL) has changed the game with its iPhone, and there are now a raft of other smartphones on the market as well.

My favorite play on this theme is Synaptics (Nasdaq: SYNA), which was a pioneer in touch-screen technology. The company is not without its detractors (as I’ll detail in a moment), but it is a proven play on the touch-screen revolution.

Until recently, Synaptics was a clear-cut growth story. Sales rose from $185 million in fiscal (June) 2006, to $267 million in fiscal 2007, to $473 million by fiscal 2009. But the global slowdown, coupled with increasing competition, led to a sharp slowdown in sales growth this past year to just +9%. The market for touch-screen technology should rebound nicely in 2011 as new devices hit the market, but Synaptics is now dealing with a host of new competitors, including Atmel (Nasdaq: ATML) and Cypress Semi (NYSE: CY). So the company has had to deal with a smaller slice of a much larger pie. That means sales are only expected to rise +10% to +15% this year and next.

Yet investors may be underestimating the changing nature of computing. Notebook sales are slumping because consumers have already started (or will soon be) buying tablet computers to replace them. The key difference between notebooks and these tablets: touch-screens. Who needs a keyboard when you can simply tap on what you want?

#-ad_banner-#Apple may have kick-started the tablet computer industry, but a much broader onslaught is about to arrive. The likes of Hewlett-Packard (NYSE: HPQ), Dell (Nasdaq: DELL), Samsung, Research In Motion (Nasdaq: RIMM) and others are all rolling out tablet computers. And as they’re much larger than smartphones, touch-screen makers like Synaptics can charge a lot more for touch-sensitive glass.

Yet the company’s detractors question whether Synaptics can replicate its success in the tablet market. The company has not formally announced any major design wins, but you need to know how the tech industry works to see why that hasn’t happened yet. Tech vendors unveil technologies that must go through a six to 12-month testing phase with clients. Synaptics unveiled its new ClearPad tablet touch screen in late July, and it is simply too soon for customers to announce that Synaptics’ technology will be used. But if history is any guide, Synaptics’ heavy R&D means that the ClearPad has features that many rivals lack, such as precise inputting, the ability to read the movements of 10 fingers, and very fast response time. As design wins eventually roll in, the company’s languishing stock, which is off -20% since early August, should rebound nicely.

Solid cash flow
Whether the company grows at a +10% clip or a +25% clip, you can be sure that cash flow will be prodigious. Free cash flow has risen every single year since fiscal 2007 and now exceeds $100 million annually. That has pushed the company’s cash balance up to more than $7 a share, which has enabled it to announce ever larger stock buybacks.

Action to Take –> Synaptics’ shares are a good growth story, trading at around 10 times projected fiscal 2012 profits. As the company is increasingly seen as a play on tablet computers, that multiple should expand. An expansion in the price-to-earnings (P/E) ratio up to 15 implies +50% upside, which could be reached once new tablet computer design wins are announced.

P.S. — For the past few weeks we’ve been telling you about some of the hottest investment opportunities for 2011. From tiny nuclear power plants that can be buried in your lawn, to revolutionary pain killers made from cobra venom, we’re convinced the companies behind these products will soar in the coming year. To get briefed on these opportunities, and several others that we think could return many times your money, please read this memo.