April Portfolio Analysis

April Portfolio Analysis

52-weeks: Portfolio UP 77.3%

January: Portfolio UP 39.5%
February: Portfolio UP 18.6%
March: Portfolio DOWN 0.90%
April: Portfolio UP 29.7%

Year to Date: Portfolio UP 112.7% (not a typo)
As of May 1, 2019

Positions (percent of portfolio):

Ciena (CIEN) - 0.92%
Diodes Inc. (DIOD) - 0.20%
Enphase (ENPH) - 85.7%
Ericsson (ERIC) - 1.60%
Infinera (INFN) - 0.66%
Inseego (INSG) - 0.79%
Lumentum (LITE) - 1.21%
Micron (MU) - 4.05%
MJ (cannabis ETF) - 1.08%
Skyworks (SWKS) - 1.30%
Transenterix (TRXC) - 0.3%
Vericel (VCEL) - 0.03%
VMWare (VMW) - 1.96%
Cash - 8.00%

Current Positioning

Some may have noticed I did not post a March Summary. There were two good reasons for that: First, I withdrew triple my normal distribution in March (taxes, medical costs and what not). Second, my portfolio morphed dramatically (for me) throughout both March and April. It was a portfolio in transition.

We live in turbulent economic times. We are beset by winds from all sides. We’re seeing the impacts of trade wars, tariffs, China treaty negotiations, Brexit, and China-specific concerns regarding IP theft (ZTE) and cybersecurity (Huawei). Daily rumors, tweets, press statements, etc. whipsaw the Market. My portfolio reflected that volatility because I’ve concentrated my investment dollars in specific market sectors that I believe will be major future disruptors: solar, optical networking, data handling and 5G (all are “China sensitive”). Although it’s not immediately obvious in my summary of shares held and in what percent, between March 1 and May 1, my share counts fluctuated dramatically (almost daily) as I was selling the rips and buying the dips. It started when I began top-slicing ENPH to invest in other opportunities. Later, I was buying ENPH to replace the shares I had sold with discounted shares. My VMW share count fluctuated significantly, too. Generally speaking, most China-related stocks were taking a beating. Makes sense. Global supply-chains have been seriously disrupted. No one knows when tariffs may be imposed or reduced. Datacenter growth has stalled as a consequence of the uncertainty. Optical networkers and 5G-related companies suffered hits, too. But, hey, that’s investing.

I sidelined a number of companies during this turbulence. Gone is AAOI and any metals/minerals holdings. I ended up making deep cuts to my DIOD, INFN, INSG and MU holdings. I use the term “sidelined” deliberately. I intend to circle back to these companies if/when the shares offer a sweet discount. I believe all of these players will prosper in coming years. At present, the Fear & Greed Index has drifted into Neutral territory from Greed readings weeks ago.

I also reduced my TRXC and VCEL holdings. I had unrealized gains to realize and it felt to me that both companies (INSG, too) were suffering from “high expectations without much supporting data syndrome” That happens with companies that still have that “New Enterprise” smell. I’ll know a lot more about their prospects this week when they all report earnings.

I added shares of CIEN, ERIC and MJ. CIEN is a player in the 5G business. I’ve begun to study the financials. ERIC was a surprise investment. I hadn’t considered ERIC in any way, shape or form for 20 years. What I’ve now learned is that ERIC is one of three principal network installers: Huawei, Nokia and ERIC. ERIC shares will be coming on strong when the transition from 4G to 5G networks ramps ever higher.

Finally, I invested in MJ, a cannabis ETF with a formal name too difficult to remember. The cannabis sector (in all its variants) will experience significant growth. There will be multiple winners and losers. Given that I’m not prescient enough, and too lazy, to do the necessary research, this ETF should do the trick (much like Biotech ETFs are a safer way to play in that sector).

I added to a few positions: SWKS and LITE principally because I felt the prices were reasonable. ENPH was my biggest increase. This has become a familiar ebb and flow. When ENPH announces positive news, the share price moves up rather dramatically. Not too much later, the consolidation phase begins and share prices fall (rather dramatically). I’ve taken to significant top-slicing when everyone’s celebrating. My goal, though, is to repurchase all those sold shares before the next earnings report. So far, that strategy has served me well. At some point in the future, ENPH will begin acting maturely. But not yet.

Just One More Thing

I previously noted I invested in VMW with this parenthetical remark: “(yes, yes I know that Nutanix is the overwhelming board favorite)”

Year-to-date performance: NTNX is DOWN 5.39% and VMW is UP 48.2%

Good night and good luck.

28 Likes

Hi Putnid,

Its amazing that you have done so well with ENPH. It was left for dead with many controversies and evolving management last year and you nailed.

Congratulations, you have some special skills.

I see so many of your other holdings and it seems you are a deep value / turn around expert, specially in hardware / chip type of businesses. Is this a fair read?

Are the companies you listed in turn around phase or have they gone back into growth phase? What is your basis of decision making?

I am semi-familiar to quite familiar with many of these companies you listed and even with your tremendous success, I just cant fathom buying any of these even if they are dirt cheap.

Thats because I am learning that it is a lot less work (and stress) for me to ride a set of growing revenue companies with high quality business than finding a deep value in which I can be confident of turn around and also be confident that market will recognize the turn around.

I may not be able to get 100% upside in a year with one big stock but I do get 30% to 50% upside with a portfolio in which many stocks have more than doubled… this is a more fault tolerant approach for me.
This is not to take away from what you do… just saying why it is not for me.

Good luck and please keep posting your monthly.

10 Likes

putnid,

I notice that ENPH had about the same amount of revenues in 2015, then revenues went down through 2017, then ticked back up again in 2018 and now matching their previous high.

Is there something causing all this?

I see they have one competitor, SolarEdge. So they have a technological advantage but I’m not sure about why it’s not smooth transition to adaption.

I know I talked about this company years and years ago with someone on NPI and it was most likely you but I never bought it.

A lot of recent Glassdoor reviews of Enphase sound like this, from an eight-year employee (more below). “[the new management] took months to figure out what Enphase manufactures (they thought we made solar panels)”

Not precisely founder led…

FROM GLASS DOOR:

Avantages

Smart intelligent seasoned employees. It was a really great product at one time.

Disadvantages

New management has decimated product quality and treated experienced employees with disdain. Upon opening a new office in India, they said, “Don’t worry, you won’t lose your jobs to India”, but we lost our jobs to India.
Right after they said “Quality over revenue”, they decimated the Quality department and processes. They don’t know the difference between managing a part and an assembly, they took months to figure out what Enphase manufactures (they thought we made solar panels), and they moved headquarters without notifying the employees.

Advice to the management

Learn!!!

from yelp (2 stars)

11/22/2018 1.0 star

As a user and an installer I cannot say enough about how poor the products are and how bad customer service is. I am utterly amazed a lawyer has not sued them for misrepresentation, as they state their microinverters are 99.9999% always online. Yet, just like many other reviewers I have experienced failure rates close to 20%. In response to Enphase’s products failing all the time the company unilaterally changed their warranty to refuse reimbursement of labor to fix all the issues. This is the reason many of the installers are not returning calls…they have been screwed by Enphase. Thankfully I am now in a senior position at a development and construction firm…I have required Enphase be removed from all future projects.

7 Likes

Putnid, you are an extremely brave guy. I don’t think I have ever seen anyone with what is essentially a one-stock portfolio before!!! Unless it’s a misprint you have 86% of your assets in one stock, and then a dozen little trivial positions filling in the other 14%.

I, personally, would never have the courage to do that, no matter how much faith I had in the company. I’m thinking back at how much confidence I had in Skyworks a few years ago, and then it crashed, or how much confidence Tinker had in Nvidia, and then it crashed, etc. Wow! You are a braver man than I am!

Best of luck,

Saul

14 Likes

I see so many of your other holdings and it seems you are a deep value / turn around expert, specially in hardware / chip type of businesses. Is this a fair read? - nilvest

I don’t view myself that way at all. I view myself as a hard-bitten, savvy and cynical business executive contemplating whether or not to invest in a specific BUSINESS. My sole preoccupation is on PROFITS (the more the merrier). I have zero interest in taking a stake in a company that cannot generate net profits. That said, I doubt I would have even considered investing in ENPH when I was much younger, greener and mistake prone. 45 years of investing (all the while trying to learn the craft) is a great (often painful) teacher. In addition, I credit my experience as a corporate executive/manager with significant profit/loss responsibilities. One lives and dies by the financials and must, therefore, become quite proficient at that. In addition, involvement in a number of significant mergers or acquisitions is a priceless education.

As for the focus on profits, it doesn’t matter that much to me if they are short-, mid- or long-term. I evaluate each opportunity on its own merits. I may be short-term opportunistic. I may see valuation errors that will be corrected (either soon or eventually). I may have my eyes on significant, disruptive, paradigm-shifting technological developments that will be enormously profitable for a number of companies. This is my favorite investment category. That’s why I keep harping on the solar/EV/storage themes, the coming 5G revolution and sweeping changes in the data handling/storage sector. The challenge is coming to understand who the probable winners will be. That’s why I take small nibbles of promising prospects, and then build my portfolio positions over time (or walk away).

I am semi-familiar to quite familiar with many of these companies you listed and even with your tremendous success, I just cant fathom buying any of these even if they are dirt cheap.

Funny thing, that’s how I feel when I read glowing reports of companies with fast growing revenues but NO PROFITS. I think investing in big dreams (at a high price) carries significant risk.

4 Likes

I wish I could offer succinct, pithy responses to your questions, but there’s way too much ground to cover. I’ve posted my comments about ENPH for several years running (mostly on this board). There have been quite few posts as the business was evolving. I’ve even posted some summary reports.

I’ll point to one fact that has caused the Market to take notice: In 2018, ENPH posted $0.10 in net earnings. At this time, consensus estimates for 2019 earnings hover around $0.40. Generally speaking, the Market looks kindly on businesses that grow EARNINGS at 400% per year.

I should also note that Q1 sales were constrained by parts shortages. ENPH sold out its available inventory. The same holds true in Q2. Yeppers, ENPH’s booked orders will continue to exceed inventory. All this will change as ENPH ramps to new suppliers/manufacturing lines in Q3 and beyond. How significant will these improvements be? ENPH management believes they will move from selling < 1M miroinverters quarterly to > 2M by Q4.

3 Likes

Hi, Saul!

Funny, I don’t think of myself as a BRAVE investor. To the contrary, I try to be as dispassionate and analytical about my investments as possible. I’ve made too many investing errors in years past by allowing my emotions/ego to rule. Note, I’ve already summarized my investing perspectives/experience in an earlier post (#55367).

You are correct in that I’ve gone all in on ENPH. This is the one and only time in my investing career that I’ve taken such a large stake. I rarely exceeded 20% position sizes. Then again, I’d not encountered such a great investment opportunity as ENPH has been for me (a 1,400% gainer and still rising…made dazzling by owning a robust 5-figure share count). It took me some 45+ years of experience to get to where I could make such a savvy decision. It also helped that I had duly noted Peter Lynch’s dictum to make BIG bets when great opportunities come along.

5 Likes