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New Stock Pick

Feb. 29, 2024
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Wiko Steyn
Author
Wiko Steyn

Core Fund Update

Today we are looking at two potential stocks for our Core Fund. This is a reminder that all 5 portfolios that we have built on FinMeUp are demonstration portfolios and we do not provide any financial advice or stock buy and sell recommendations. 

Our Core Fund takes a dynamic approach to investing, centered around identifying companies that exhibit the characteristics of both current and future leaders. In particular, we look for rapid growers that are taking advantage of massive secular trends, which provide a tailwind to their growth prospects.

The two stocks we are comparing, Enphase Energy and Zscaler, are excellent examples of this investment philosophy. Both companies operate in industries that are experiencing strong secular growth trends. Enphase Energy, for instance, is at the forefront of the transition to clean energy, which is being driven by concerns about climate change and environmental sustainability. While Zscaler is benefiting from the increasing need for cybersecurity solutions as businesses become more reliant on digital technology.

However, we recognize that investing in a high-growth industry does not necessarily guarantee success. Once an industry becomes a sure bet, it often attracts competition and lots of it. As such, we must analyze each company's competitive positioning, business model,  growth prospects, management and risk before making investment decisions. 

 

Enphase Energy 

is a company that specializes in solar energy solutions, including microinverters, energy storage, and monitoring software. The company's microinverter technology converts direct current (DC) electricity from solar panels into alternating current (AC) electricity that can be used by households and businesses.

One of the key advantages of Enphase's microinverter technology is its ability to optimize energy production on a per-panel basis. Traditional solar energy systems use a single inverter to convert DC electricity from all of the solar panels into AC electricity. This means that if one panel is shaded or not performing well, it can impact the energy production of the entire system. Enphase's microinverter technology, on the other hand, allows each panel to operate independently, which maximizes energy production and improves the overall performance of the solar energy system.

Enphase has experienced significant growth in recent years, as the demand for clean energy continues to increase. The company's revenue has grown at a compound annual growth rate (CAGR) of over 50% over the past three years, driven by strong sales of its microinverter technology and energy storage solutions. Additionally, Enphase's software and monitoring tools provide customers with valuable insights into their energy production and usage, which can help them optimize their energy consumption and reduce costs.

Certainly, a key driver of Enphase's growth is the increasing demand for clean energy solutions. The transition to renewable energy sources, such as solar power, is driven by several factors, including environmental concerns, government incentives, and declining costs of solar technology. Enphase is well-positioned to benefit from this trend, as its microinverter technology provides a more efficient and effective way to harness solar energy.

However, there are also some challenges facing Enphase and the solar energy industry as a whole. One of the main challenges is the cost of solar energy systems. While the cost of solar technology has declined significantly in recent years, it is still relatively expensive compared to traditional energy sources. Additionally, the availability of government incentives and subsidies can impact the demand for solar energy solutions.

Another challenge for Enphase is competition. As mentioned earlier the solar energy industry has attracted a lot of competition in recent years, particularly from larger players such as Tesla and SunPower. These companies have significant resources and expertise, which could make it difficult for Enphase to compete.

 

Zscaler 

was built as a cloud-native platform and this is a key differentiator in the cybersecurity market. The platform provides customers with a range of benefits compared to traditional on-premises security solutions. First, Zscaler's cloud platform enables better performance and scalability, as customers can easily add or remove capacity as needed without the need for hardware upgrades. Additionally, the cloud platform provides greater flexibility and agility, enabling customers to quickly adapt to changing security threats and business needs.

In terms of innovation, Zscaler has invested heavily in research and development to develop advanced security technologies. For example, the company's cloud sandboxing technology uses machine learning and artificial intelligence to detect and block zero-day attacks. Zero-day attacks are used by cybercriminals to exploit vulnerabilities that have not yet been discovered by security vendors, making them particularly difficult to detect and block. Zscaler's cloud sandboxing technology is designed to quickly identify and block these types of attacks, providing customers with the highest level of security.

Zscaler's Zero Trust Exchange platform utilises the largest security cloud on the planet to make doing business and navigating change a simpler, faster, and more productive experience. Zero Trust is a security concept that assumes that all users, devices, and applications are not trusted by default, and therefore must be verified and authorized before being granted access to resources on a network.

Zscaler's Zero Trust approach is based on the principle of allowing users to access only the resources they need, when they need them, and with the appropriate level of security. To achieve this, Zscaler leverages its cloud-native security platform to provide secure access to applications, regardless of their location or device. Overall, Zscaler's Zero Trust approach helps organizations minimize the risk of data breaches, reduce the attack surface, and improve the overall security posture of their network.

Like Enphase, Zscaler faces competition from massive companies. Particularly in this case from Microsoft as well as many upcoming companies like Cloudflare which earned a position in our Unicorn Portfolio. 

Both companies show great potential but there is only one spot left in the Core Fund. To determine the winner we have used our scoring process on both companies and Zscaler came out on top, claiming the 20th spot in our Core Fund.

 

Portfolio Update Summary

  • Buy $500 ZS at $111.88


 

Disclosure

This article is not financial advice and is based on the author's opinion. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk, and a financial product's past performance does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products. The $20K in the Core Fund is not real money and only a demonstration of a typical portfolio. This is an actively managed portfolio, where we will buy and sell positions as we deem fit without any regard for taxation. Remember, all selling of stocks triggers a tax event in most countries and it is the investors personal responsibility to always remain tax compliant.

 


 


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