It's better to be a top company in a hot field than a leading firm in a struggling industry. So investors should look for the best stocks in the best groups. Super Micro Computer, Li Auto, Duolingo, MongoDB and Allegro MicroSystems are the top-rated stocks in the five strongest industry groups so far this year.
SMCI stock is the No. 1 stock in the Computer-Hardware/Peripherals group, according to IBD Stock Checkup. That group is up just over 95% through June 30. LI stock, not Tesla, is No. 1 in the Auto Manufacturers group, up 55.8% in 2023. DUOL stock is on top of the Computer Software-Education/Media group, which is up 54.5% this year. MDB it top stock and leads the Computer Software-Database group, which is up 52.6% year to date. ALGM stock is No. 1 in Electronic-Semiconductor Fabless, which also includes Nvidia. Fabless chipmakers are up 46.5% at midyear.
Top Industry Groups Of 2023
|Super Micro Computer
Super Micro is the No. 1 rated stock in the computer hardware/peripherals group. And it's not hard to see why. SMCI stock has tripled in 2023 (203.6%), including a 133.9% surge in the second quarter.
Earnings growth has been massive, though it slowed to just 5% in the latest quarter.
Super Micro stock broke out of a consolidation in February, though that would have been hard to hold a few weeks later. SMCI stock then blasted out of a messy six-week range on earnings, and kept running to a record 270.18 on June 9. Shares retreated to the 21-day line, but last week rebounded from that level, offering a chance to start or add to a Super Micro position.
Other top stocks in the group include Corsair Gaming, IonQ, Dell Technologies and Logitech.
Li Auto Stock
Li Auto is No. 1 in the Auto Manufacturers group. With EV sales booming, earnings and sales growth are accelerating rapidly. LI stock is up 72.1% so far in 2023, including a 40.7% jump in Q2.
Shares tried to break out in late March and mid-April, but those moves immediately fizzled. Finally on May 10, Li Auto gapped out of its base on a hot earnings report. A few weeks later, LI stock offered another entry as it rebounded from the 21-day line and cleared a short consolidation.
Other top auto stocks include Ferrari, Ford Motor, Tesla stock and Stellantis.
TSLA stock has skyrocketed 112.5% in 2023, though it's Q2 gain of 26.2% lagged Li Auto's. Also, Tesla earnings fell in Q1 vs. a year earlier, while sales growth has slowed.
DUOL stock is No. 1 in the education/media software industry. The language learning platform has doubled (101%) in 2023, but was up just a fraction in Q2 2023.
Duolingo is still losing money, but is expected to start turning a profit later this year. Sales growth is robust.
Duolingo stock surged to start 2023, then gapped out of a long consolidation in early March on first-quarter earnings. Shares kept running through March, then consolidated. DUOL stock tumbled in early May on AI fears, but then cleared that area on Q2 earnings, as Duolingo touted how artificial intelligence is a boon to its business. Shares hit a 52-week high of 168.40 on June 6. Duolingo stock then pulled back to below its 50-day line, where it's currently finding resistance. A move above the 50-day and 21-day lines could offer an early entry.
Other top stocks in Duolingo's group include Coursera, Instructure, Spotify and Udemy.
MDB stock is No. 1 in the Software-Database group. MongoDB has surged 108.8% in 2023, including a 76.3% spike in Q2. Now consistently profitable, MongoDB has reported three straight quarters of triple-digit earnings growth.
MongoDB stock ran up in January, then consolidated for three months before an early May breakout. Shares then gapped up on its fiscal Q1 earnings report. MDB stock consolidated, forming a three-weeks-tight that had elements of a high tight flag, a rare and often quite profitable, pattern. Its shares have just cleared that area, though MongoDB is still actionable.
Other top database software makers include Progress Software, Dropbox, Splunk and Commvault Systems.
Allegro Micro Stock
Allegro MicroSystems stock leads the semiconductor fabless group. Fabless chipmakers lack their own fabrication plants, or "fabs." They hire chip foundries such as Taiwan Semiconductor to make their chips.
ALGM stock has climbed 50.4% in 2023. Shares actually fell 5.9% in Q2, but rebounded strongly in May and June. Allegro Micro earnings jumped 76% in the March-ended fiscal Q4, snapping a three-quarters string of accelerating profit growth. Sales gains have sped up for the past five quarters.
Allegro Micro stock broke out in January, one of the early tech leaders in 2023. Shares of the top stock soared to a record 48.72 on April 3, then sold off hard, tumbling well below the 50-day line. Shares began to bounce in late April. On June 13, ALGM stock reclaimed the 50-day line. A few days later, ALGM cleared a short-term high and broke a trendline, offering an early entry. Shares then paused amid the market pullback, but then took off last week. Allegro is now extended from that early entry and working its way up toward a 48.72 buy point in a cup base, according to MarketSmith analysis.
Other top fabless chip stocks include Lattice Semiconductor, Rambus, Monolithic Power Systems and Nvidia.
Nvidia Stock Big Winner, Earnings Expected To Follow
NVDA stock has been the big-cap tech winner of 2023, surging 189.5% in 2023 and 52.3% in Q2. Nvidia now boasts a $1 trillion market cap. Shares rebounded from near the 21-day line, breaking a short downtrend, offering an aggressive entry.
Nvidia earnings have fallen for the past four quarters, a big reason why NVDA stock isn't No. 1 top stock in its group. But investors expect Nvidia earnings per share to more than double in its current fiscal year, thanks to blowout company guidance as the chipmaker leads the AI boom.
Remember, investors should never buy on ratings alone. They are a useful screening tool, but buying decisions should be made with chart action, market conditions and much more in mind.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.