Two Analysts, One Shared Pick

Louis’ “bottom up” approach and Eric’s “top down” approach have identified the same stock … why its recent 33% gain is likely just the beginning

33% gains in three-and-a-half weeks …

As we noted in yesterday’s Digest, that’s what Louis Navellier’s Breakthrough Stocks subscribers are currently toasting.

These gains have come from Enphase Energy, Inc. (ENPH), a semiconductor company that is vital to the solar sector.

Louis found Enphase due to his numbers-based market approach. Regular Digest readers know that Louis has objective criteria that signals what to buy, when to buy it, and when to sell to collect the profits.

But it turns out another analyst at InvestorPlace also has Enphase in his crosshairs … yet for different reasons.

Eric Fry is InvestorPlace’s global macro specialist. Eric’s experience with macro trends has helped him call nearly every significant market move of the past 25 years … and he’s made more stock recommendations that resulted in 1,000%+ gains than anyone we know in the financial newsletter industry. That’s why, around our offices, he’s called, “Mr. 1,000%.”

Eric’s approach is different than Louis’ in that Eric starts with a “top down” analysis, while Louis defaults to “bottom up.”

What’s the difference?

With “top down,” Eric begins by looking at broad markets and/or asset classes to determine which might be offering an attractive investment opportunity. For example, perhaps it’s “precious metals” or “Brazilian equities” or a depressed foreign currency.

Whatever it is, Eric looks for pockets of the market that are undervalued, offering significant upside potential. After having identified this attractive broad market, he then digs deeper, finding the best specific way to play the opportunity.

Louis, as a “bottom up” guy, begins with a more granular approach. His screening tools use numbers to find specific stocks that appear poised for gains, regardless of the specific sector in which they operate.

It turns out Enphase is attractive to Louis on a specific-numbers basis, as well as to Eric on a broad sector “story” basis. And when two of our analysts recommend the same investment based on different criteria, we take note.

So, today, let’s dig deeper. We’ll look at Enphase, but let’s also turn our attention to the industry in which it operates — solar. As we’ll learn from Eric, it’s an industry whose time is finally coming.

 

***What is it that Louis sees in Enphase — or any stock, for that matter?

As just noted, Louis sees everything through a numbers-lens.

He has a proprietary 8-point system that determines if a stock is positioned for outsize gains. It must have strong sales growth, operating margin growth, earnings growth, earnings momentum, earnings surprises, analyst earnings revisions, cash flow and return on equity.

Here’s how Enphase looks to Louis:

 

 

From his Tuesday update to Breakthrough Stocks subscribers:

As you can see above, ENPH earns top marks for both its Fundamental Grade and Quantitative Grade.

Sales growth is especially impressive. For the third quarter, it reported that third-quarter revenue soared 130.8% year-over-year to $180.06 million, up from $78 million in the same quarter a year ago.

Looking forward to the fourth quarter, Enphase Energy expects revenue between $200 million and $210 million, or 116.7% to 127.5% annual revenue growth.

So, from a “bottom up” perspective, Louis sees significant strength. And this is at the heart of every recommendation he makes — earnings power, rooted in cold, objective numbers.

But what about “top down” now? For the moment, let’s forget Enphase’s specific numbers, and evaluate its overall story, as well as how that story fits into the broader narrative of the rise of the solar industry.


***A sector whose time has come

It was back in August that Eric wrote a profile piece on the solar sector. He began by telling the tale of Augustin Mouchot, an inventor who developed the “solar concentrator.”

This device harnessed the sun’s energy to power a steam engine. Mouchot demonstrated the unique power of his concentrator at the 1878 Universal Exposition in Paris. Unfortunately, it was before its time.

From Eric:

Mouchot’s invention would fade into obscurity … and produce nothing more for him than abject poverty …

For most of the 153 years since Mouchot invented his solar concentrator, the solar power industry has been a graveyard for capital.

To be sure, the industry has continued to progress and innovate, but it hasn’t created generations of “solar millionaires” or landed any “solar entrepreneurs” on the cover of Time magazine.

Although solar power has always offered the tantalizing promise of huge rewards, it has usually delivered the disappointing reality of meager profits … or large losses.

But solar’s long, disappointing history is over. A new history has begun.

As one illustration of this, Eric produced a chart showing how solar energy production has now surpasses that of coal, as you can see below.

 

Eric goes on to explain that, thanks to rapidly improving battery technologies, energy storage is becoming an attractive add-on to both residential and commercial projects.

For example, as recently as 2015, a company like Target would contract with a solar company to install panels on the roofs of its superstores.

Once installed, the panels would deliver daytime electricity to supplement the electricity Target pulled from the regional power grid. But now, when Target installs new rooftop panels, it may also install a battery system to store the excess energy it doesn’t use immediately.

From Eric:

This energy storage component of the renewable energy industry is the new-new thing … and it has the potential to deliver big-big growth …

***So, where does Enphase fit into solar’s ascendancy?

Eric explains that Enphase is a leading provider of “modular microinverters.” Those are the widgets on a solar panel that convert the direct current produced by each solar panel into alternating current that’s routed to the grid and/or energy storage system.

From Eric:

Enphase’s state-of-the-art microinverters boost solar panel efficiency, while also reducing the risk of fire that “string inverters” can cause.

Due to a variety of factors, Enphase is entering a new growth phase in which its solar solutions will be attracting robust demand.

As one catalyst for this growth phase, Eric points toward the broad microinverter industry. At present, less than 10% of all solar installations utilize microinverters. But that number is growing fast, thanks to their many advantages over traditional string inverters. This means outsized growth potential.

So, in Enphase, we have a company posting strong numbers today, coupled with an attractive growth story for tomorrow, positioned as a leader in a sector that’s finally beginning to show signs of sustained profitability.

Here’s Eric for the sum-up:

Clearly, all signs point to continuing, robust growth at Enphase. I expect the company’s earnings to soar over the next few years, as residential solar growth surprises on the upside and microinverters steal market share from “string” inverters at a much faster pace than most analysts currently predict.

To learn more about Louis’ numbers-based market approach, click here. And for Eric’s macro “top down” strategy, click here. Either way, it looks like Enphase has a strong future.

We’ll continue to keep you up to speed on solar’s growth.

Have a good evening,

Jeff Remsburg

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