Markets are rising and investor sentiment remains optimistic. Conventional wisdom predicts further gains, assuming we are still in a long-term bull market. And it appears the Wall Street institutions agree.
Looking at UBS’s situation, chief US equity strategist Jonathan Golub has laid out his own agreement with the bullish view. Golub explains where the market is finding support, and then explains where the markets are likely to go. “Rate cuts should reduce interest costs and default risk, increasing both earnings per share and valuations. Financial conditions point to less stress/more liquidity, which is positive for valuations,” Golub said. “We are adjusting our S&P 500 year-end 2024-25 targets to 5850 and 6400, from 5600 and 6000… These forecasts are based on EPS estimates of $240, $257 and $275 for 2024-26, which equates to 9.1%, 7.1% and 7.0% growth.”
Against this backdrop, UBS analysts have made recommendations for two stocks, each highlighting their strong growth prospects. According to TipRanks, both stocks also have 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)
The first 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 especially useful in the automotive industry, where they are critical components of electric vehicle charging systems, industrial controls, and various motors and motorized factory transportation systems. The company’s products are critical for autonomous driving safety systems, factory automation and, beyond the automotive industry, energy-saving technologies for data centers.
Like many chipmakers, Allegro is a ‘fabulous’ company; that is, the company handles the design and development work for its products and assembles the prototypes – while outsourcing mass production to external chip foundries. The fabless model allows Allegro to focus its energy and resources on building the strongest product line for its customer base.
And right now that customer base has expanded. The company has more than 10,000 corporate customers worldwide and claims more than 50 automotive OEMs in its customer list. Allegro’s chip products are widespread throughout the global automotive supply chain, with more than 9 of them found in the typical car on the road today. The company has more than 650 U.S. patents to protect its intellectual property and has shipped more than 11 billion sensors in total.
Allegro’s product lines give the company a stake in the electric car industry, and the recent slowdowns in electric vehicles are impacting the company. Allegro’s revenue, profits and share price have all fallen in recent months. The company’s fiscal 2Q25 results showed revenue of $187.4 million. This was a decline of 32% year-on-year and was just below forecast. The company’s profit for the quarter, at 8 cents per adj. stock was 2 cents above forecast, but was down from 40 cents in the second quarter of 2024.
None of that has helped the shares, which are down 32% this year. Looking ahead, UBS analyst Timothy Arcuri, who has a TipRanks #3 rating overall, lays out some concrete reasons why Allegro’s prospects are bright. He writes about the company: “In our view, The Street appears to be underestimating the cyclical recovery. forward (we’re 4%/3% above F25/F26 EPS), estimates don’t appear to imply any price or stock gains potential, and ALGM’s auto earnings appear to be among the riskiest in the entire analog universe. ALGM is being deployed for automotive electrification, but is mix agnostic because it has about the same opportunity in hybrids as EVs and the magnetic sensors are a relatively cheap and valuable part of the bill of materials. Finally, ALGM is opportunistic in the industrial market, although the Street is so conservative that it believes this third of sales will never return to historic levels.”
In summary, Arcuri says: “The company is in the driver’s seat as the analog semiconductor market recovers, with an isolated position in the EV bill of goods, secular growth drivers supporting most of the long-term expectations even without any contribution from price/share/ contents. …”
The five-star analyst’s comments support a buy rating, and Arcuri’s $30 price target points to a 45% one-year upside potential. (Click here to view Arcuri’s track record.)
Overall, Allegro’s Strong Buy from the Street is unanimous, based on seven positive reviews in recent months. The shares are priced at $20.64 and the average price of $28.17 indicates a one-year gain of 36.5%. (To see Allegro’s stock forecast.)
Agree 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 known as a source of rich natural resources including coal, potash, 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 six operating rigs. Of the proven reserves on Chord’s acreage, 57% consists of crude oil.
Earlier this year, the company completed the acquisition of the Canadian company Enerplus. Enerplus’ assets boosted Chord’s overall position and net acreage, and the combined entity is now working to smoothen operations and integrate Enerplus’ assets into Chord’s operations.
In Chord’s latest quarterly report, which covers Q2 24, the company produced a total of 207.2 MBoepd during the quarter, which exceeded the upper end of expectations; of that total, 118.1 MBopd was crude oil. These operations supported the company’s total quarterly revenue of $1.26 billion, exceeding forecasts by more than $308 million and growing 38% year over year. The company’s earnings per share came in at $4.69 based on non-GAAP measures, 40 cents below expectations, but up from the $3.65 reported in the same period last year. Also notable: the company reported adjusted free cash flow of more than $216 million. Chord will release Q3 results tomorrow (Thursday, November 7).
UBS analyst Josh Silverstein is willing to take a bullish view on Chord’s stock and its near-term prospects. The analyst writes: “Our positive outlook is supported by CHRD’s improved operational efficiency through the integration of Enerplus (ERF), a strong balance sheet that returns 75% of free cash flow to shareholders, and an attractive valuation. We believe that CHRD’s valuation gap does not reflect strong fundamentals and is pricing in a 25-30% discount to WTI. We believe that as CHRD continues to execute on its consolidation scenario and generate higher FCF/BOE and returns through the adoption of simulfracs and longer laterals, the discount will narrow, with the multiple revaluation from ~3.0x to 4.0x…”
Silverstein backs his stance on CHRD with a Buy rating and a $168 price target, indicating he is confident in a 32.5% one-year upside. (To view Silverstein’s track record, click here.)
The UBS view here is optimistic – the Street is even slightly more optimistic. The Strong Buy consensus rating for this stock is supported by 10 Buys and 2 Holds, while the $126.64 sales price and $186.33 average target price together suggest 47% upside potential for the year ahead. (To 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 for informational purposes only. It is very important to do your own analysis before making an investment.
