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2 Beaten-Down Chip Stocks to Add to Your Watchlist

Despite an unabating worldwide semiconductor chip shortage, overwhelming demand from consumer electronics, electric vehicles, and several other industries, and government and corporate investments to ramp up production, should drive the semiconductor industry’s growth. Therefore, we believe beaten-down chip stocks Allegro MicroSystems (ALGM) and Diodes (DIOD) could be solid bets now. These stocks are well-positioned to capitalize on the industry’s growth. Read on.

The Russian-Ukraine conflict has exacerbated the pandemic-induced global semiconductor chip shortage. U.S. auto sales in March declined by 4.6% from February, owing to chip scarcity. The semiconductor industry is facing overwhelming demand for chips from rapidly digitizing industries.

Furthermore, chipmakers continue to ramp up production to meet the pent-up demand, supported by government and corporate investments. According to the Semiconductor Industry Association, global chip sales are projected to grow by 8.8% in 2022. And the recently passed Chips Act is also predicted to drive the U.S. semiconductor industry’s growth.

Given this backdrop, adding beaten-down quality chip stocks Allegro MicroSystems, Inc. (ALGM) and Diodes Incorporated (DIOD) to one’s  watchlist could be wise.

Click here to checkout our Semiconductor Industry Report for 2022

Allegro MicroSystems, Inc. (ALGM)

ALGM in Manchester, N.H., designs, develops, manufactures, and markets sensor integrated circuits (ICs) and application-specific analog power ICs for motion control and energy-efficient systems. Its diverse product portfolio provides efficient and reliable solutions for the electrification of vehicles, automotive ADAS safety features, automation for Industry 4.0, and power-saving technologies for data centers and green energy applications.

On Feb. 1, 2022, ALGM’s president and CEO, Ravi Vig, said, “We continue to benefit from multiple tailwinds, including automotive content expansion, design win momentum, and alignment to high growth end markets. Our investments in xMR and embedded motion control, for example, are yielding innovations that are giving us a competitive advantage.”

ALGM’s total net sales came in at $186.63 million for its fiscal year 2022 third quarter, ended Dec. 24, 2021, up 13.5% year-over-year. Its net income came in at $32.94 million, compared to a $5.09 million loss in the previous period, while its EPS was  $0.17 compared to a $0.04 loss per share in the year-ago period.

For its fiscal year 2022, analysts expect ALGM’s revenue to increase 29.1% year-over-year to $763.53 million. Also, the stock’s EPS is expected to grow 69.6% to $0.78 in 2022. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has declined 32.4% in price year-to-date to close yesterday’s session at $24.47.

ALGM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

ALGM has an A grade for Sentiment and a B grade for Growth and Quality. Within the A-rated Semiconductor & Wireless Chip industry, it is ranked #11 of 96 stocks. Click here to see the additional POWR Ratings for Value, Momentum, and Stability for ALGM.

Diodes Incorporated (DIOD)

DIOD designs, manufactures, and supplies application-specific standard products in the discrete, logic, analog, and mixed-signal semiconductor markets worldwide. It focuses on low pin count semiconductor devices with one or more active or passive components. DIOD is headquartered in Plano, Texas.

On Feb. 28, 2022, DIOD announced its definitive agreement to acquire onsemi’s wafer fabrication facility and operations located in South Portland, Maine. Dr. Keh-Shew Lu, DIOD’s chairman, president, and CEO, said, “The proposed acquisition of the South Portland Facility aligns well with our strategic objective for significant revenue and profit dollar growth over the next several years.”

DIOD’s net sales increased 37% year-over-year to $480.17 million for the fourth quarter, ended Dec. 31, 2021. Its net income came in at $65.51 million, up 120.3% year-over-year, while its EPS was  $1.43, up 142.4% year-over-year.

Analysts expect DIOD’s revenue to increase 9.1% to $1.97 billion in 2022. Its EPS is estimated to increase 22.2% to $6.33 in 2022. Also, it surpassed EPS estimates in each of the four trailing quarters. The stock has declined  34% year-to-date to close yesterday’s trading session at $72.48.

DIOD has an overall B rating, which equates to Buy in our POWR Ratings system. It has an A grade for Value and a B grade for Growth. It is ranked #21 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for DIOD (Momentum, Stability, Sentiment, and Quality).

Click here to checkout our Semiconductor Industry Report for 2022


ALGM shares were trading at $24.07 per share on Thursday morning, down $0.40 (-1.63%). Year-to-date, ALGM has declined -33.47%, versus a -6.76% rise in the benchmark S&P 500 index during the same period.



About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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