“Load up,” UBS says of these two “strong buy” stocks

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 that Wall Street institutions agree.

Jonathan Golub, chief US equity strategist, has been monitoring the situation from UBS and offered his own endorsement of the bullish view. Golub explains where the market is finding support and then outlines where the markets are likely to go. “Interest rate cuts should reduce interest expense and default risk and increase both earnings per share and valuations. Financial conditions suggest less stress/more liquidity, which is positive for valuations,” Golub said. “We are adjusting our 2024-25 year-end S&P 500 targets from 5,600 and 6,000 to 5,850 and 6,400… These forecasts are based on EPS estimates of $240, $257 and $275 for 2024-26, representing 9.1% , 7.1% and 25% imply 7.0% growth.”

With this in mind, UBS analysts have made recommendations for two stocks, highlighting each for their strong growth prospects. According to TipRanks, both stocks also have significant support from the stock market with a Strong Buy consensus from analysts. Here are the details and the bank's comments on both.

Allegro MicroSystems (ALGM)

First up is Allegro MicroSystems, a semiconductor company focused on integrated circuits (ICs), a key component in a variety of technological and industrial applications. Allegro's IC products are used in sensor hardware and application-specific analog power systems and are particularly useful in the automotive industry, where they are important components of electric vehicle charging systems, industrial controllers, and various motors and motorized factory conveyor systems. The Company's products are critical to autonomous driving safety systems, factory automation and, outside of the automotive industry, energy-saving technologies for data centers.

Like many chipmakers, Allegro is a fabless company. That means it handles the design and development work on 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 is extensive. The company has more than 10,000 corporate customers worldwide and counts more than 50 automotive OEMs on its customer list. Allegro's chip products are widely used in the global automotive supply chain, with more than 9 of them in a typical car on the road today. The company has more than 650 U.S. patents protecting its intellectual property and has shipped a total of more than 11 billion sensors.

Allegro's product lines give the company a share of the electric vehicle industry, and the recent decline in electric vehicles has impacted the company. Allegro's sales, profits and share price have been declining in recent months. The company's fiscal 2Q25 results showed revenue of $187.4 million. This was a 32% decline year-over-year and fell just short of forecast. The company's quarterly earnings came in at 8 cents per adj. The stock was 2 cents above forecast – but down from 40 cents in the second quarter of FY24.

None of that has helped the stock, which is down 32% this year. However, looking ahead, UBS analyst Timothy Arcuri, who is ranked No. 3 overall by TipRanks, offers some concrete reasons why Allegro's outlook is positive, writing about the company: “In our eyes, the Street appears to be the cyclical recovery (we're 4%/3% above F25/F26 EPS), the estimates don't seem to show any price or stock upside potential, and ALGM's automotive sales appear to be one of the lowest risk in the entire analog universe. ALGM is aimed at electrifying cars, but cannot be combined as it has about the same opportunities in hybrid vehicles as electric vehicles and its magnetic sensors represent a relatively inexpensive/valuable part of the BOM. Finally, ALGM is opportunistic in the industrial market, although the Street is so conservative that it believes this third of the business will never return to historical levels.”

In summary, Arcuri says: “The company is ahead as the analog semiconductor market recovers, with an isolated position in the electric vehicle bill of materials, secular growth drivers supporting most long-term forecasts, even without a price/share/content contribution. “…”

The 5-star analyst's comments support a Buy rating, and Arcuri's $30 price target suggests 45% one-year upside potential. (To view Arcuri's track record, click here.)

Overall, Allegro's Strong Buy from the Street is unanimous based on 7 positive reviews in the last few months. The share price is $20.64 and the average price target of $28.17 suggests a one-year gain of 36.5%. (See Allegro stock forecast.)

Chord energy (CHRD)

The next UBS-backed stock we'll look at is Chord Energy, an independent oil and gas company operating in the Williston Basin in North Dakota and Montana. This region is known as a source of rich natural resources, including coal, potash, and oil and natural gas. The latter are Chord's responsibility; The Company has extensive, high-quality assets in the region, including more than 1.26 million net hectares and 6 operating rigs. Of Chord's proven reserves, 57% are crude oil.

Earlier this year, the company completed its acquisition of Canadian company Enerplus. Enerplus's assets have strengthened Chord's overall position and net acreage, and the combined company is now working to smooth operations and integrate Enerplus's assets into Chord's operations.

In Chord's most recent quarterly report covering 2Q24, the company produced a total of 207.2 MBoepd during the quarter, exceeding the high end of guidance; Crude oil accounted for 118.1 MBopd of this. These operations supported the company's total quarterly revenue of $1.26 billion, exceeding guidance by over $308 million and growing 38% year-over-year. The company's non-GAAP earnings per share came in at $4.69, falling 40 cents short of expectations – but up from $3.65 in the year-ago period. Also worth noting, the company reported adjusted free cash flow of over $216 million. Chord is expected to report third-quarter results tomorrow (Thursday, November 7).

UBS analyst Josh Silverstein is ready to be bullish on Chord 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 supporting a return of 75% of FCF to shareholders, and an attractive valuation. We believe CHRD's valuation gap does not reflect its strong fundamentals and is pricing in a 25-30% discount to WTI. We believe the discount will narrow as CHRD continues to execute its consolidation playbook, generating higher FCF/BOE and yields through the introduction of simulfracs and longer laterals, with the multiple repricing from ~3.0x to 4.0x …”

Silverstein backs up his stance on CHRD with a Buy rating and a $168 price target, indicating he is confident in the company's one-year upside potential of 32.5%. (To view Silverstein's track record, click here.)

The UBS assessment is optimistic here – the Street is even a little more optimistic. The Strong Buy consensus rating for this stock is supported by 10 Buys and 2 Holds, while the sales price of $126.64 and the average price target of $186.33 combine to suggest an upside potential of 47% for the year ahead . (See Chord stock forecast.)

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