Wall Street tends to focus on big stocks and exciting stories, which leaves smaller companies and those with less exciting businesses to languish under the investment radar. Great investors look at headline-grabbing stocks, but then go a step further and look at the companies that nobody is talking about. That includes Control4 Corporation (CTRL), Enphase Energy, Inc. (ENPH -2.10%), and Artesian Resources Corporation (ARTNA 1.15%). Here's a quick rundown on this trio of under-the-radar stocks that these three fool.com contributors think are worth a closer look.
Get connected to this smart home stock
Chris Neiger (Control4): The smart home market is already getting crowded with the biggest names in tech. Alphabet's Google Home smart speakers and Amazon's Echo devices get much of the attention when people talk about smart home technologies, but as important as these companies are to building the connected homes of the future, Control4 is quietly leading in this space as well.
The company doesn't make the hardware for smart homes but instead offers high-end installations for everything from connected security systems, climate control, lighting, cameras, entertainment, and much more. Customers who want to automate every aspect of their home can use Control4 to install the devices, connect them to each other, and then access the Control4 app to manage the entire home. Let's just say that if you have some money to burn -- think tens of thousands of dollars -- Conrtol4 can turn any home into one that would make the most hard-core techie salivate.
To date, the company has connected nearly 370,000 homes worldwide. The beauty about Control4 is that the company is device- and application-agnostic. It works with about 11,000 devices and apps from an array of companies. Which means that as the smart home market evolves, Control4 will be able to evolve along with it.
Revenue grew by 18% in the first quarter 2018 to $59.1 million, and non-GAAP net income was $5.8 million, or $0.21 per diluted share, up from $0.12 in the year-ago quarter. Investors will also like the fact that the company has about $70 million in cash and no debt.
The smart home market is still in the early stages of growth, and the company's management believes Control4 can grab much more of it. The company's CEO, Martin Plaehn, said on the most recent earnings call,
We estimate that Control4 has captured less than 2% of our North America target home market, which includes households with annual income over $150,000, and we view this as a tremendous opportunity as we increasingly offer a broader range of innovative products, which enhance our ability to enable more homes to become smart homes.
Last year, 433 million smart home devices were shipped worldwide, and by 2022 that number will have increased to nearly 940 million, according to IDC. This explosion of smart home devices represents a massive opportunity for Control4 in the coming years. Investors who see the writing on the wall now would be wise to take a closer look at this under-the-radar play.
The solar energy dark horse
Travis Hoium (Enphase Energy): The solar industry could be one of the most disruptive forces of the next century in energy. Energy from the sun is already competitive with new coal, nuclear, and natural gas power plants and costs are coming down every year. What makes solar energy truly disruptive is the fact that it can be installed on homes and businesses, giving consumers power over their energy production and consumption that they've never had before. Enphase Energy could play a critical role in this rooftop solar market.
Enphase Energy makes microinverters that connect to solar panels, changing the electricity coming from the panel from direct current (DC) to alternating current (AC) that outlets supply in homes and businesses. Inverters are needed in every solar system, but the reason microinverters are valuable is that module-level electronics are being mandated on all rooftop solar panels. Instead of installing another module-level electronics device, like a power optimizer, and having a central inverter, some companies are just building microinverters into their solar panels.
SunPower is the most notable panel manufacturer using microinverters and it is using Enphase Energy as its exclusive microinverter supplier after a deal announced earlier this year. The module level electronics mandate will be a tailwind and having SunPower as a customer gives the company legitimacy in signing other deals.
From a financial angle, Enphase Energy isn't yet profitable and has had to redesign its products to be competitive with other module-level electronics devices. But its latest products are gaining traction in the market and driving margins higher. The company may be a small player in the energy space, which is why Wall Street isn't paying attention to it, but as solar grows this could be one of the industry's biggest winners.
A water utility you've probably never heard of
Reuben Gregg Brewer (Artesian Resources Corporation): Water utilities generally have pretty good records when it comes to combining slow and steady growth with regular dividend hikes. That's part of the reason why investors like them so much, a fact that usually leaves the sector with modest yields most of the time. Which is why you might want to look at tiny, Delaware-based Artesian Resources, a $350 million market cap water utility that has a long history of offering a relatively high yield compared to the larger companies in the water utility space.
Artesian's current yield is around 2.5%, with next closest peer (Aqua America) at about 2.3%. That's not a huge difference, but if you are trying to maximize current income, every basis point counts. Artesian stands out for more than just a high yield, however, since it has amassed an impressive streak of 26 consecutive annual dividend increases. The historical growth rate of the dividend, meanwhile, has hovered around the rate of inflation growth over the last decade. That's not great, but it means your buying power is being protected.
Revenues and earnings, meanwhile, have headed generally higher over the past 10 years. Future growth is backed by Artesian's plans to upgrade its asset base and expand via small, bolt-on acquisitions like the recent purchase of Slaughter Beach Water Company. Add in a price-to-tangible-book-value ratio that's toward the low end of the peer group and conservative income investors might want to take some time to get to know this relatively unknown water utility.
Names you should know
You probably haven't heard of Control4, Enphase, or Artesian. But that doesn't mean they aren't worth getting to know. For investors who like tech, Control4's focus on installing modern electronic gear and Enphase's solar power converter gear are both enticing deep-dive candidates. Although under the radar, they each appear to have huge opportunities. Relatively tiny water utility Artesian, meanwhile, is a good research candidate for conservative income investors who are trying to squeeze out a little more yield from their portfolios. It's small but just as well-run as its better-known peers. If you spend a little time getting to know this trio, I'm confident that one or more of the stocks could end up in your portfolio today.