Markets are rising, and investor sentiment remains bullish. The conventional wisdom is predicting further gains, on the assumption that we’re still in a long-term bull market. And it would seem that Wall Street’s institutions are in agreement.
Watching the situation from UBS, chief US equity strategist Jonathan Golub has set out his own agreement with the bullish view. Golub explains where the market is finding support, and goes on to lay out where markets are likely to go. “Rate cuts should lower interest expense and default risk, adding to both EPS and valuations. Financial conditions point to less stress/more liquidity, a positive for valuations,” Golub said. “We are adjusting our year-end 2024-25 S&P 500 targets to 5850 and 6400, from 5600 and 6000… These forecasts are based on EPS estimates of $240, $257, and $275 for 2024-26, implying 9.1%, 7.1% and 7.0% growth.”
Against this backdrop, UBS analysts have issued recommendations on 2 stocks, highlighting each based on its strong growth prospects. According to TipRanks, both stocks also boast substantial support from the Street with a “Strong Buy” analyst consensus. Here are the details, and the bank’s comments on both.
Allegro MicroSystems (ALGM)
First up is Allegro MicroSystems, a semiconductor company with a focus on integrated circuits (ICs), a key component in a wide range of technological and industrial applications. Allegro’s IC products are used in sensor hardware and in application-specific analog power systems, and are particularly useful in the automotive industry, where they are vital parts of electric vehicle charging systems, industrial regulators, and various motors and motorized factory conveyor systems. The company’s products are vital for autonomous driving safety systems, factory automation, and, outside the auto industry, in power-saving technologies for data centers.
Like many chip makers, Allegro is a ‘fabless’ company; that is, it handles the design and development work on its products and puts together the prototypes – while farming out the mass production work to outside chip foundries. The fabless model allows Allegro to focus its energies and resources on putting together the strongest product line for its customer base.
And right now, that customer base is extensive. The company boasts over 10,000 enterprise customers worldwide and claims more than 50 OEMs from the automotive industry in its customer list. Allegro’s chip products are widespread in the world’s automotive supply chain, with more than 9 in the typical car on the road today. The company has over 650 US patents to protect its intellectual property and has shipped out a cumulative total of more than 11 billion sensors.
Allegro’s product lines give the company a stake in the electric vehicle industry, and recent slowdowns in EVs have impacted the company. Allegro’s revenues, earnings, and share price are all down in recent months. The company’s fiscal 2Q25 results showed a top line of $187.4 million. This was down 32% year-over-year and just skidded underneath the forecast. The company’s bottom line in the quarter, at 8 cents per adj. share, was 2 pennies above the forecast – but was down from 40 cents in fiscal 2Q24.
All of that hasn’t helped the stock, which has fallen by 32% this year. However, looking ahead, UBS analyst Timothy Arcuri, who holds the #3 rating overall from TipRanks, sets out some concrete reasons why Allegro’s outlook is bright, writing of the company, “To our eyes, the Street appears to be underestimating the cyclical recovery ahead (we are 4%/3% above F25/F26 EPS), estimates seem to bake in no pricing or share gain potential, and ALGM’s autos revenue appears among the most de-risked in the entire analog universe. ALGM is levered to autos electrification, but agnostic to mix as it has about the same opportunity in hybrids as EVs and its magnetic sensors are a relatively low cost/high value portion of the BOM. Lastly, ALGM is opportunistic in the industrial market, though the Street is so conservative it assumes this third of the business will never return to historical levels.”
Summing up, Arcuri says, “The company is in the driver’s seat as the analog semiconductor market recovers, with an insulated position in EV bill of materials, secular growth drivers supporting most of long term guidance even without any contribution from price/share/content…”
The 5-star analyst’s comments support a Buy rating, and Arcuri’s $30 price target points toward a one-year upside potential of 45%. (To watch Arcuri’s track record, click here.)
Overall, Allegro’s Strong Buy from the Street is unanimous, based as it is on 7 positive reviews set in recent months. The shares are priced at $20.64 and the $28.17 average target price suggests a one-year gain of 36.5%. (See Allegro’s stock forecast.)
Chord Energy (CHRD)
The next UBS-backed stock we’ll look at, Chord Energy, is an independent oil and gas company operating in the Williston Basin of North Dakota and Montana. This region is well known as a source of rich natural resources, including coal, potash, and oil and natural gas. The latter are Chord’s business; the company has extensive, high-quality assets in the area, including more than 1.26 million net acres and 6 operated drilling rigs. Of the proven reserves on Chord’s acreage, 57% is crude oil.
Earlier this year, the company completed its acquisition of the Canadian firm Enerplus. Enerplus’s assets provided a boost to Chord’s overall position and net acreage, and the combined entity is now working to smooth out operations and integrate the Enerplus assets into Chord’s operations.
In Chord’s last quarterly report, covering 2Q24, the company produced a total of 207.2 MBoepd during the quarter, exceeding the high end of the guidance; of that total, 118.1 MBopd was crude oil. These operations supported the company’s $1.26 billion in total quarterly revenue, beating the forecast by over $308 million and growing 38% year-over-year. The company’s EPS came to $4.69 by non-GAAP measures, missing expectations by 40 cents – but rising from the $3.65 reported in the prior-year period. Also of note – the company reported an adjusted free cash flow exceeding $216 million. Chord is scheduled to release Q3 earnings tomorrow (Thursday, November 7).
UBS analyst Josh Silverstein is willing to take an upbeat view of Chord’s stock and its prospects for the near-term. The analyst writes, “Our positive outlook is supported by CHRD’s improving operational efficiency as they integrate Enerplus (ERF), a strong balance sheet supporting 75% of FCF being returned to shareholders, and attractive valuation. We see CHRD’s valuation gap as not reflecting its strong fundamentals, and pricing in a 25-30% discount to WTI. We believe that as CHRD continues executing their consolidation playbook, and generates higher FCF/BOE and returns through the adoption of simulfracs and longer laterals, the discount will narrow, with the multiple re-rating from ~3.0x to 4.0x…”
Silverstein backs up his stance on CHRD with a Buy rating, and a $168 price target that indicates his confidence in an upside of 32.5% on the one-year horizon. (To watch Silverstein’s track record, click here.)
The UBS view here is bullish – the Street is even a bit more so. The Strong Buy consensus rating on this stock is supported by 10 Buys and 2 Holds, while the $126.64 selling price and $186.33 average target price together suggest an upside potential of 47% for the year ahead. (See Chord’s stock forecast.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
