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Investors Business Daily
Investors Business Daily

IBD 50 Stocks To Watch: Chip Leader Allegro MicroSystems Nears New Buy Point

Tuesday's IBD 50 Stocks To Watch pick — chip leader Allegro MicroSystems — is one of the top stocks to buy and watch in the nascent stock market uptrend. ALGM stock was little changed midday Tuesday, holding above its 50-day line following sharp gains since Friday.

Allegro is a designer, developer and marketer of specialized integrated circuits used mostly in automobile and industrial markets. The devices also show up in a range of consumer and computer segments. These integrated circuits — or ICs — can precisely measure motion, speed, position and current in a wide variety of environments and applications.

The company's product line includes integrated circuits for power management, such as chips designed to enhance the performance of motors used in electric vehicles. The company says its ICs also can determine the performance of transmissions and other key parts of a car. In addition, Allegro develops technology for light-emitting diodes in lighting for autos.

In the most recent quarter reported, announced Oct. 27, earnings and sales jumped 55% and 23%, respectively, vs. the year-ago period. It was the best EPS increase in a year, and the best sales performance in five quarters.

The company earned 31 cents a share on revenue of $237.7 million in the September-ended quarter. For the October-December quarter, Allegro is expected to earn 32 cents a share on sales of $245.2 million, respective year-over-year increases of 68% and 31%.

Allegro's IBD Stock Ratings

This stock to buy and watch shows a strong 98 out of 99 Earnings Per Share Rating and an SMR Rating of A, according to IBD Stock Checkup.

Over the last three quarters, Allegro's EPS growth averaged 42%, according to IBD MarketSmith. Earnings are expected to jump 53% in the fiscal year ending in March and an additional 5% in fiscal 2024. The company booked a solid 23% pretax profit margin in the last fiscal year, as well as a great 23% return on equity.

Boasting a strong 98 IBD Composite Rating due to strong fundamental and technical metrics, Allegro is the top-ranked stock in the chipmaker industry group. Among the other chip leaders, IBD Leaderboard watchlist stock Lattice Semiconductor, in the fabless semiconductor industry group, is also rebounding from its 50-day line. Lattice shares are tracing a large cup with handle that has a 76.57 buy point.

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ALGM Stock Retakes Key Level

Allegro shares are building a cup-with-handle base with a 34.24 buy point, according to IBD MarketSmith chart analysis. Shares are about 10% away from the latest buy point.

Last week, the stock found much-needed support around its 50-day line. This week, shares decisively rebounded Monday, rallying nearly 4%. The stock paused Tuesday, falling 0.5% in midday trade.

Bullishly, the relative strength line is just shy of new highs, with shares back above their 50-day line during the nascent stock market rally. A strong RS line at the start of a new uptrend confirms Allegro as a market leader.

The RS line measures a stock's price performance vs. the S&P 500. Given the chip leader's fundamental and technical strength, Allegro is one of the top stocks to buy and watch in the current market.

Other IBD 50 Stocks To Buy And Watch

These are three recent IBD 50 Stocks To Watch picks.

Company Symbol  Buy point Type of base
Lincoln Electric 150.78 Flat base
Lennar 95.34 Cup with handle
Afya 17.12 Consolidation
Source: IBD Data As Of Jan. 10, 2023

Follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on top stocks to buy and watch and the stock market.

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