Strike a Balance Between Growth and Stability With These 3 Names Ready to Rally

Key Points

• Allegro MicroSystems is benefiting from strong automotive and data center demand, with automotive revenue up 15% and bookings climbing 30% year over year.
• Onto Innovation posted record quarterly revenue of $343 million, up 35% year over year, supported by a $1.1 billion backlog and raised growth forecasts.
• Badger Meter faces near-term sales declines of about 7% but expects sequential improvement as water infrastructure modernization projects ramp up.

Investors often feel forced to pick between companies that are dependable, with steady returns but fewer opportunities for growth, and those that have strong growth potential but run the risk of volatility. Though rare, there are some firms that exist at the intersection of both stability and potential for returns. These companies tend to have durable end markets, healthy balance sheets, and are positioned in industries experiencing secular growth trends.

Three industries that may benefit from persistent structural demand drivers in the coming years are electric vehicles, advanced chip manufacturing, and water infrastructure. Each of the companies below is positioned to benefit from one of these three themes, offering a combination of durability and potential growth over a multi-year investment cycle.

Allegro MicroSystems Balances Automotive Momentum With a Role in the Data Center Space

Though not a household name, Allegro MicroSystems, Inc. NASDAQ: ALGM has established itself as one of the top suppliers of magnetic sensing integrated circuits and power semiconductors, shipping more than 2 billion devices each year. These products have numerous applications across industries—including the lucrative data center space—but perhaps the most promising in the years to come is the automotive market.

Automotive revenue surged by 15% year over year (YOY) last quarter, and this figure seems likely to further accelerate: bookings and design wins climbed by 30% over the same period.

Automotive revenue represented 71% of the company's total sales in its latest fiscal year, thanks to electric vehicle and advanced driver assistance system (ADAS) products, among others. As these two categories in particular are likely to continue to see strong demand going forward, Allegro could capitalize on its industry-leading position.

Of course, diversification into other industries is important for stability, and Allegro's recent 32% sequential sales growth in its data center business is encouraging. Data center revenue for the current fiscal year is expected to more than double.

Onto Is a Crucial Tollbooth Stock at the Heart of Chip Making

Regardless of whether investors view AI chip demand as sustainable over the long term, the semiconductor industry continues to evolve to meet the needs of an expanding range of industries. Inspection and metrology tools—key to ensuring quality as chips become more and more complex—are indispensable, and this is where a company like Onto Innovation NYSE: ONTO fills a critical gap.

This firm offers optical inspection, defect review, and process control systems to semiconductor maker clients to help improve yields and reduce production errors. Onto does not rely solely on demand for wafer fabrication, giving it some buffer against industry volatility due to supply chain issues and other concerns.

Onto's unique niche has paid off so far: the firm brought in record Q2 revenue of $343 million, up 35% YOY and above guidance. Crucially, management also raised H2 revenue growth forecasts to more than 25% above H1 2026 levels, expecting Q4 revenue to be higher than Q3.

A record backlog of $1.1 billion supports continued performance into the coming quarters, aided by expanding margins. Despite already gaining 73% year to date (YTD), ONTO shares could continue to rise by another 39%, according to analysts.

A Water Infrastructure Company Navigating Near-Term Pressures

Semiconductor names may dominate headlines, but Badger Meter NYSE: BMI provides access to another compelling secular trend that gets less attention: modernizing water infrastructure. This company plays an important role in updating decades-old water distribution systems in the United States, helping utilities and other companies to reduce water loss and improve efficiency. Badger's flow measurement and control products have become essential to these processes.

Badger combines recurring software and monitoring products and services with specialized smart meters and other offerings, leading the integration of technology into an industry that has largely been stuck in an earlier era.

Unlike the companies above, Badger's most recent results were not as compelling: sales fell about 7% YOY amid pressure to adjusted operating margins. However, sales did improve sequentially as some of the company's major recent projects have begun to ramp up in earnest, and it expects revenue to improve quarter by quarter this year.

Crucial to Badger, however, will be keeping its electronic component costs down, particularly in areas where it competes with data center and AI demand. A $150-million credit facility, renewed for the latest quarter, may provide some cushion.