Retail investors seeking the ‘right’ stocks to add to their portfolios have a hidden ace up their sleeves – Wall Street’s top analysts, who have built reputations for accuracy and success through long records of successful stock picks. These analysts are the best of the best, standing above the Street’s 7,700 professional stock reviewers, and they’re the voices that investors should stay tuned to.
Let’s keep them in mind then, as we turn to today’s economy. Supply chains are in the news, with product shortages impacting everything from car dealers’ lots to grocery store shelves. And while the crunch has unsettled large sectors of the economy, the top analysts are finding stocks that are poised to gain, even in this environment.
We’ve used the TipRanks platform to pull up the details on some of these top picks from top pros. They are Strong Buys, and they show nice upside potential too. Let’s find out what else attracted some of the Street’s best analysts.
Allegro MicroSystems (ALGM)
We’ll start in the semiconductor chip sector. By now, we’ve all heard about the chip shortages that are plaguing everything from smartphones to automobiles, but the chip companies are not necessarily suffering. They are still seeing high demand and ready customers for their products.
Allegro MicroSystems is a fabless chip maker, specializing in integrated circuits for analog power tech and sensor systems. Allegro’s products find their way to the automotive and industrial tool sectors, where they are frequently used in electric cars; they are found in the EVs’ control systems. In addition, Allegro’s products are popular in green energy applications and data centers.
It’s been a little more than a year since Allegro’s October 2020 IPO, making this a good time to take a look at the company’s performance as a public entity. ALGM shares are up 74% since the IPO, far outpacing the broader market’s gains over the same period.
In addition to the steep share gains, Allegro has seen steadily increasing revenues and earnings since going public. The company released its third quarter report, for the second quarter of the company’s fiscal year 2022, in late October. The net sales number, $193.6 million, was up an impressive 42% year-over-year, while the EPS of 20 cents beat expectations and came in 11% above the fiscal Q1 number.
Looking forward, however, the company expects the combination of COVID and supply chain issues to impact the top and bottom lines. Management predicts a sequential drop in fiscal Q3, mainly due to COVID recently disrupting production at third-party factories in Malaysia. The factories are back online, and Allegro expects the backlog to clear up during Q4.
Needham analyst Quinn Bolton, Wall Street’s top stock pro according to TipRanks, comes down firmly in favor of investing in Allegro. “As the market leader in magnetic sensors, Allegro's dollar content in automobiles is expected to increase, driven by expanding adoption of ADAS and electric vehicles (xEV),” the analyst said. “Allegro also expects to gain share in the automotive and industrial markets with its motor controllers and motor drivers given its ability to provide a full-solution set offering. We believe Allegro's exposure to these long-lived, stickier markets gives the company greater revenue stability and visibility into its outlook. Allegro also expects to expand margins as it transitions to an asset-lite model.”
Bolton rates the stock as a Buy, and his $40 price target indicates a potential upside of 26% for the year ahead. (To watch Bolton’s track record, click here.)
From the unanimous Strong Buy consensus rating here, it’s clear that Wall Street agrees with the Needham analyst’s view; all five of the recent stock ratings are positive. ALGM shares are trading for $31.8 and the average price target of $39.80 implies a 25% one-year upside. (See Allegro’s stock analysis at TipRanks.)
SMART Global Holdings (SGH)
Next up is SMART Global Holdings, another semiconductor chip company. This is a holding company, with subsidiaries that produce components for original equipment manufacturers (OEMs), including specialty memory solutions for the computing, networking, communications, storage, and mobile markets. SMART’s products are found in desktop computers, laptops, tablets, and smartphones, and include Flash storage, DRAM chips, and solid state memory chips.
Like Allegro above, SMART’s stock has seen strong growth in the past year. The company’s shares have appreciated by 83%, more than triple the gains on the NASDAQ and S&P 500 indexes. And also like Allegro, SMART has seen strong recent gains in both revenue and earnings.
In mid-October, SMART reported its results for the fourth quarter and full fiscal year 2021. For the quarter, the top line was up 57% yoy to $467.7 million, and EPS was up an even stronger 163%, to $2.16. The company reported $1.5 billion in full-year sales, a yoy gain of 34%, and full-year EPS of $5.22, for a yoy gain of 102%. Much of this growth came in the third and fourth fiscal quarters, when earnings and revenues both accelerated. A key point in the gains is the company’s move away from dependence on its Brazil Products division, with diversification especially into memory solutions.
That shift away from the Latin market is a strong point in the view of Jefferies analyst Mark Lipacis, who writes, “Mgmt noted that Brazil memory is now less than 50% of the overall memory solutions model or an estimated ~26% of revs in FY Q4 from 60% in CY18. We expect its IPS segment to grow at a 20%+ CAGR driven by demand for HPC platforms, and both the IPS and LED segments to post 30%+ gross margins in the LT. Thus, Brazil memory rev and profit share will continue to drift down. We think diversification away from Brazil will provide upside given that: 1) the other businesses have a longer lifecycle and are thus more profitable; and 2) the shift makes SGH less dependent on an emerging market.”
Lipacis, who holds the #2 spot in the TipRanks analyst ratings, reiterates his Buy rating on SGH shares, and his $72 price target implies an upside of 23% by the end of next year. (To watch Lipacis’ track record, click here.)
Once again, we’re looking at a stock with 5 unanimously positive reviews backing up a Strong Buy consensus rating. SGH shares have a $58.6 trading price, along with a $74.40 average price target that points toward a 27% one-year upside potential. (See SMART’s stock analysis at TipRanks.)
Daseke, Inc. (DSKE)
Last on our list is Daseke, and here we shift gears into the trucking industry. Daseke is a logistics company, moving goods from place to place to meet the needs of industry and retailers. The company owns a range of assets, including 4,500 tractors and over 11,000 flatbed and specialized trailers, supported by more than 1 million square feet of warehouse space.
Shares in Daseke are up by 66% since the turn of year, as the company has no shortage of business. Daseke saw $1.45 billion at the top-line last year, even with the COVID pandemic, and is on track to beat that figure this year. For the first nine months of 2021, the company has already recorded $1.16 billion in revenue. Adjusted earnings in the recently reported 3Q21 were 43 cents per share, beating the analysts’ forecast, as did the $424 million revenue haul.
Daseke’s Flatbed Solutions segment was the main driver of the strong revenue and earnings, as it showed a 32.5% yoy increase in freight shipping rates, compared to just 4% for the Specialized Solutions segment. Despite a lower freight volume, higher rates kept revenues up, while a downsized fleet saw increases in load volume, improving tractor efficiency. Average revenue per tractor was up 4.1% compared to the prior year.
Jason Seidl, 5-star analyst with Cowen and Wall Street’s #6 rated analyst, takes note of the above, and adds that the company has built a “strong pipeline of actionable opportunities, and we expect tuck-ins from the company in the near-future. Management made a point, however, of stressing that it is being more strict in terms of M&A targets than it has in the past. Accretion, strong cash flows, and end market exposure will be high on their list when looking at new companies to bring into the fold.”
In short, Seidl sees this logistics company as taking a conservative turn – but that’s not a bad thing, as he gives the shares an Outperform rating with a $14 price target suggesting a 45% one-year appreciation. (To watch Seidl’s track record, click here.)
There are only 3 reviews on file for this stock – but they all agree that it’s a Buy, giving DSKE a Strong Buy consensus rating. DSKE shares have an average price target of $13.17, implying an upside of 36% from the current trading price of $9.67. (See Daseke’s stock analysis at TipRanks.)
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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.