Stock Trade of the Week: Analog Devices (ADI)

Analog Devices (Nasdaq: ADI) – ADI designs, manufactures, and markets a broad portfolio of analog, mixed-signal, and digital signal processing (DSP) integrated circuits. The company’s products are used in all types of electronic equipment, from the cellular industry to medical imaging equipment to the aerospace industry. The company is headquartered in Norwood, Massachusetts and was founded in 1965.

ADI has incredible fundamental measurements for a company that has been around for over 50 years.

Earnings have grown by an average of 29% per year over the last three years while sales have grown by 26% per year over the same time period.

Earnings grew by 21% last quarter while sales grew by 10%.

The company will announce earnings again on November 20 and analysts expect earnings growth of 4.8% over the third quarter of 2017.

Expectations for the year as a whole are for earnings growth of 27% and sales growth of 18.9%.

The profitability measurements are just as strong as the earnings and sales growth.

The company’s return on equity is at 21.6%, the profit margin is at 35.7%, and the operating margin is 32.4%.

We see how ADI’s stock price has fallen in the last few months after consolidating from mid-June through mid-August. This pullback has been industry wide and in some cases, the stocks have dropped much further than what ADI has. Even with that, the stock was the most oversold it had been in the last four years before last week’s bounce. I look for ADI to rally sharply over the next few quarters.

Suggested strategy: Buy ADI with a maximum entry price of $90. I would set a target of at least $120 over the next 12 months (for a potential return of almost 40% from current prices). I would also suggest a stop at $75.

— Rick Pendergraft

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