Technology stocks remind me of a normally well-behaved child who occasionally throws a temper tantrum. 

#-ad_banner-#When the overall market is strong — as it has been for the past several years — tech stock performance is typically stellar. On the other hand, when bear markets do occur, tech stocks typically lead the way lower.

With the Nasdaq Compsite Index now trading near 4,200, up more than 80% from a low just under 2,300 in October 2011, the tech “child” has been very, very good lately.

Drilling deeper into the tech sector, some of its best performers have been semiconductor stocks. Take NXP Semiconductor (Nasdaq: NXPI), for example, which I wrote about in November . It’s brought readers who took my advice nearly 40% returns in less than five months, and the stock is up more than 90% in the past year.

SanDisk (Nasdaq: SNDK), which I recommended a couple of weeks ago , is already up 10% since then, and nearly 50% in the past 52 weeks.

This week, it’s another semiconductor stock that I believe has strong potential: Freescale Semiconductor (NYSE: FSL).

Based in Austin, Texas, Freescale is a global leader in “embedded” processors. The company makes microprocessor chips, microcontrollers, sensors and analog integrated circuits for the automotive, health care, consumer appliance and mobile phone sectors. Essentially, the company provides the building blocks to help make what’s called the “Internet of Things” a reality. 

If you aren’t familiar with the Internet of Things, the concept suggests that in the future everyday objects will be connected to the Web and will communicate with you. As an example, in the near future your alarm clock should be able to use the Web to check traffic updates. It would then adjust for traffic delays and wake you at the perfect time. You could catch an extra 40 winks but still get to work on time.

Although still futuristic, such devices are becoming closer to reality. As the Internet of Things gains momentum, so too should FSL. 

In the most recently reported third quarter, Freescale posted $1.1 billion in revenue, up 10% from $1 billion in the comparable year-earlier quarter. Because of increased demand for the company’s processors in the auto market, earnings turned positive to $0.09 a share from a loss of $0.10 in the year-ago period. Management expects upcoming quarters to be equally positive.

The technicals certainly paint a bullish picture.

Rising off a November 2012 low near $7.60, shares formed a major uptrend, characterized by steadily rising peaks. Since that time, they have more than tripled in a year and a half.

In late January 2013, the stock rose several dollars in one trading week. By March, it reached a recovery high of $16.15, not far below the $17.84 high for all of 2012. FSL met resistance and fell to a low of $12.35 in April, but immediately bounced back, reaching a high of $17.44 in early May.

It continued to trade in a volatile fashion for the remainder of 2013. The stock would test resistance just under $18, fall back, and find buying interest in the $13 range. 

In early 2014, this resistance was penetrated after the stock formed a small basing pattern between November 2013 and January 2014. When shares broke $17.80 resistance, they surged several dollars in one week on much higher-than-normal trading volume.  

After moving rapidly higher, they consolidated, establishing a small rectangle. The bottom of the rectangle, near $21.70, represents support, with the $23.77 peak as resistance. This rectangle was bullishly broken on Friday, and shares are likely to continue higher since there is no overhead resistance.

Analysts following the company project shares could potentially hit a high of $30, which represents 25% returns from current levels. My target price just under $28 is a bit more conservative, but still offers potential 16% profits.

The bullish technical outlook is driven by solid fundamentals.

Based on increased demand for the company’s microcontrollers, management expects fourth-quarter revenue will increase at least 9% year over year to a range of $1.07 billion to $1.11 billion. For the full 2014 year, analysts project revenue will rise 8% to $4.52 billion.

The earnings outlook is even brighter. Analysts project fourth-quarter earnings will turn around to $0.25 per share versus a loss of $0.03 in the year-ago period. For the full 2014 year, analysts expect earnings will surge more than 200% to $1.39 per share from $0.45 last year.

Risks to Consider: As stated earlier, technology stocks are notoriously volatile. Right now, the Nasdaq is significantly above its rising 200-day moving average, the signature of a strong bull market. As we know from history, tech stocks can change direction reasonably quickly, but I don’t see any storm clouds on the horizon at this time.

Action to Take –>
— Buy FSL at the market price
— Set stop-loss at $21.69, just below current support
— Set initial price target at $27.99 for a potential 16% gain by late 2014

This article was originally published at ProfitableTrading.com: 
Bullish Breakout Signals This Semi Stock is an Immediate ‘Buy’

P.S. If you like FSL to continue rising, my colleague Michael Vodicka might have just the income play for you — even from a stock that doesn’t yet pay a dividend. To learn how to multiply the income you collect from the world’s most reliable dividend payers — stocks like Verizon, Microsoft and Exxon Mobil — click here to read this special report.