Get all your news in one place.
100’s of premium titles.
One app.
Start reading
Investors Business Daily
Investors Business Daily

This Semiconductor Stock Defies Industry's Pullback

Semiconductor stock Allegro MicroSystems has outperformed the industry index and broke above a trendline in bullish action Tuesday. Today, Allegro MicroSystems is the IBD 50 Stocks To Watch pick.

Allegro MicroSystems is a designer of sensor integrated circuits (IC) for the automotive, industrial, energy and infrastructure industries.

But the majority of their revenue comes from the automotive industry. The company's auto semiconductor chips are used in electric vehicles (EV), driver-assisted systems, safety features and EV battery chargers.

ALGM holds the top spot out of 37 stocks in the electronics-semiconductor fabless group. It shares that distinction with AI and graphics-chip leader Nvidia. The group is ranked a lofty No. eight out of 197 IBD industry groups.

Bullish Action Gives New Buy Point

That index has been pulling back for several days, while Allegro has held firm. The semiconductor stock has gained around 102% this year and easily outperforms the 36% gain in the PHLX Semiconductor Index.

Shares jumped 4% in heavy volume on Tuesday, causing it to break above a trendline starting with April's high of 48.72. The stock is in the buy zone from an alternative buy point around 40.

Trendline breakouts often represent the end of a downtrend and can occur while a stock is far off its highs. ALGM stock is about 14% off its 52-week high.

Shares are in a large cup base with a 48.72 buy point. ALGM added to a new uptrend after the company reported better-than-expected fiscal fourth quarter earnings and sales, and gave Q1 guidance on May 10.

Shares have slowly crept up and retook the 50-day moving average on June 13.

Earnings Growth Continues

Allegro MicroSystems' quarterly EPS grew a superb 76% in its March-ended quarter, following gains of 84% and 55% in the previous two quarters.

Quarterly sales have accelerated for five consecutive quarters, with a 35% gain in the latest quarter. That followed gains of 16%, 23% and 33%.

Automotive chip sales accounted for 67.7% of Allegro's revenue in the March quarter, while industrial chips made up the remainder.

Fiscal 2023 gross margin improved to 56.1% from 53% in fiscal 2022, primarily from improved product mix of higher average sales price and volumes.

Management gave June-ending quarterly sales guidance of $270 million to $280 million, with EPS of 35 to 39 cents per share.

Analysts project 13% full-year earnings growth for the current fiscal year and next year. Allegro holds best-possible 99 IBD Composite and EPS Ratings.

Fund Managers Scoop Up Semiconductor Stock

Nearly 600 funds owned the semiconductor stock in March, up from 468 in December and 368 in September.

Several funds in the IBD Mutual Fund Index bought shares in the March quarter, including Federated Kaufman Small-Cap Fund (FKASX), Lord Abbett Developing Growth Fund (LAGWX), Invesco Discovery Fund (OPOCX) and Fidelity Contrafund (FCNTX).

Meanwhile, Allspring Growth Fund (SGRAX) trimmed shares.

Follow Kimberley Koenig for more stock market news on Twitter @IBD_KKoenig.

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.