I'll Buy Enphase!
"Know what you own, and know why you own it." -Peter Lynch
The Portfolio
The portfolio is UP +18.00% YTD.
Our benchmark index, the S&P 500 is down -3.21% YTD.
Enphase (ENPH) Getting Crushed
The stock of Enphase is getting sold off hard today and may present an opportunity for our portfolio. The reason for the sell-off is multi-facetted so you have to connect some dots with this one.
"Outside of a dog a book is a man's best friend, inside of a dog it's too dark to read"
-Groucho Marks
Why All The Selling?
1) Enphase insiders (management and directors) had planned selling.
2) One director sold a substantial number of shares, but still holds more than 1M shares.
3) End of quarter rebalancing by indexes likely generated selling due to valuation.
4) End of quarter rebalancing by institutional investors due to valuation.
5) A little known short-seller timed a hit piece article to coincide with these events. His hit piece is the second time since 2018 that he's used this strategy with Enphase.
Enphase insiders (management and directors) had planned selling.
Insider sales are common at the end of a quarter and are made for a variety of reasons. Since insiders are restricted on the sale of shares they will take advantage of every opportunity, typically through planned sales that are made on dates, not based on price. Since these insiders continually acquire more shares during their service at the company these sales are often made in order to diversify their holdings into other stocks.
A director sold a substantial number of shares, still holds more than 1.5M shares.
Director J Turman Rodgers stock sales stand out, but looking deeper I don't see anything here. First note that his sales occurred in February and June, end of quarter selling. Next note that there was a same day sale in February and June. This was likely an options exercise where options were acquired, became shares and sold in one transaction. I can also see that Mr. Rodgers at one point owned nearly 3.5 million shares and still owns over 1.5 million shares of Enphase. My guess is these are overweight positions in his personal holdings, so these sales seem completely reasonable.
End of quarter rebalancing by indexes likely generated selling due to valuation.
There are no rules governing the frequency of index rebalancing, but many experts suggest it should be done annually. One well-known index, the Russell 2000 (RUT) which tracks small-cap stocks, does a complete top-to-bottom rebalance—called a “reconstitution”—every June to more accurately reflect the current equity markets. Enphase is a component of the Russell 2000 and represents 0.26% of the index. For perspective, the largest holding is Teledoc which represents 0.74% of the index. Enphase reached all time highs during May and June so it makes sense that the index would have done some rebalancing which would have exchange traded funds and mutual funds rebalancing through actual selling of shares.
End of quarter rebalancing by institutional investors due to valuation.
57.30% of shares are held by institutional investors. That's a great vote of confidence but can also have undue influence on the share price when these large investors rebalance their portfolios. For perspective, here are the institutional investors I'm referring to:
Vanguard Group
Blackrock
JP Morgan Chase
Invesco
State Street
A little known short-seller
Eiad Asbahi, Founder and Portfolio Manager of Prescience Point Capital, a private investment manager that focuses on investigations of public companies, published a negative research report today supporting its short position in shares of Enphase Energy, Inc.
"We believe the evidence presented in our report will result in multiple government investigations, a major accounting restatement, shareholder lawsuits and a delisting of ENPH shares from the NASDAQ." said Eiad Asbahi
Prescience claims that Enphase has fabricated revenue, cooked the books and lied about the performance of their products. Their short position is likely paying off now because of normal selling and accelerated selling generated by Prescience's fear mongering. A short position makes money when the price of the stock declines. So let's understand the strategy here. Prescience takes a short position in Enphase, then issues a press release advertising their short position and highlighting the negative claims. Prescience doesn't have to prove anything, they just make the claims and let weak hands in the market generate profits for them as they sell. The issue I find despicable is that Prescience issued their 2nd update on Enphase right around the planned selling and rebalancing that takes place in June. The first report was issued with the same timing.
To see Presciences report visit their web site. https://www.presciencepoint.com/research/
Personally I see this decline as a buying opportunity. Enphase is not a stock that pulls back very often, so I'll take advantage of this price decline to add shares. I would be a buyer at prices of $46 and below. I bought 35 shares at $44, giving the portfolio 125 shares total.
ENPH: BUY 35 @ $44
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
Stay Invested,
Clay Baker
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Keep Me Honest 2020
Today is a good time to carefully leg into stocks again (3-20-2020).
Worst Case: S&P 500 decline further to around 2,100 - 2,150 (3-28-2020).
Middle Case: S&P 500 level out around 2,650 - 2,700 (3-28-2020).
Best Case: YE S&P 500 eventually rise to around 3,000 - 3,200 (3-28-2020).
Market bottomed March 23, 2020 at S&P 500 2,237.40 (4-17-2020).
Clay's Rules
Rule #1: Don't lose money
Rule #3: Portfolios go to zero, markets don't, Stay Invested
Rule #4: When a good stock you own drops 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank sells below book value, buy it
Rule #8: Tips are for waiters. Do your own homework.
Rule #9: Don't sell a stock because you're bored with it. Do your own homework.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
ENPH, FOXF, WMT, AMZN
I am invested short in these securities mentioned in this post: GSX
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.
