Analog Devices broke out of a cup-with-handle base with a buy point of 167.96. The depth of the cup was 26%, which is nearly ideal. Shares of the chip stock have formed a three-weeks-tight pattern after breaking out, an additional bullish signal.
ADI's Composite Rating is 94, highlighting strong technical performance and earnings in recent quarters. It has a respectable Relative Strength Rating of 86, while the RS line has just flashed a blue dot, marking a 52-week high that supports the bullish outlook.
Added to that, shares rebounded on good volume from their 50-day moving average as they built the base. And they surged further as momentum lifted the stock past its 200-day line.
Volume was light as the handle formed, which is another sign of strength, indicating a mild shakeout before buyers returned in force.
The stock has just been added to the IBD 50 list, a proprietary algorithm that uncovers strong growth candidates based on recent earnings and sales.
Chip Stock Reports Strong Earnings
Analog Devices is ranked fifth in the Electronic-Semiconductor Manufacturing group. It makes analog, digital and software products, including converters, amplifiers, optical communication and power controls, and management devices used in aerospace, health care, data center, defense, communications and other industries.
The company has chip fabrication plants, or fabs, in Massachusetts and Ireland, and international offices in Shanghai, Munich and Tokyo.
In the third quarter, sales grew 39% year over year to $3.2 billion while earnings of $2.73 per share rose an impressive 58%. Revenue from B2B markets in automation, communication and industrial segments showed exceptionally strong growth. For the first quarter of 2023, it forecasts sales of $3.15 billion with adjusted earnings of $2.60 per share.
ADI insists it's ready to prosper despite economic uncertainty and is well-positioned with "stabilizing orders, a strong backlog and continued design win momentum."
The stock has a robust EPS Rating of 91, fueled by the leading chip design and manufacturer's earnings growth over eight quarters.
It currently pays a 76 cents-per-share dividend.
Analog Devices: Successful Acquisitions Drive Growth Leader
In September 2021, Analog Devices acquired Maxim Integrated Products for $20.8 billion, adding capabilities in analog and mixed signal design and manufacture. Back in 2017, it bought Linear Technology for $14.8 billion.
Mutual funds own 53% of outstanding shares.
More funds have been buying ADI stock over the past three quarters. Several exchange-traded funds also hold shares, including Invesco Dynamic Semiconductor ETF and First Trust Nasdaq Semiconductor ETF.
Follow VRamakrishnan @IBD_VRamakrishnan for more growth stock news.
