We're only two months into 2019, but shares of Incyte (NASDAQ:INCY) and Enphase Energy (NASDAQ:ENPH) have delivered year-to-date gains of 33% and 64%, respectively. Investors are running to the stocks for the same reason: their growth potential. As it turns out, the crowd is right, and these two hot stocks are still solid buys in March.

After posting an all-time worst operating loss of $243 million in 2017, Incyte tightened up its research and development spending and leaned on its two fast-growing drug franchises to deliver an operating profit of $129 million in 2018. That's made investors more willing to overlook a string of pipeline failures and once again entertain the idea of an acquisition, which may not be out of the question given the recent appetite for deals in the sector.

Enphase Energy finds itself in a distinctly different position. Investors never really thought much of the small-cap, money-losing provider of hardware for solar modules. But that changed last year as it cut lucrative deals and came close to sustainable operating profits, while an exciting new product launch has investors eyeing even more growth in the years ahead.

Check out the latest earnings call transcripts for Incyte and Enphase Energy.

Paper balloons carrying dollar signs.

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Acquisition or not, Incyte is cheap

Only a few short years ago Incyte could do no wrong in the eyes of Wall Street. It appeared that the pharma's early leadership position in the field of Janus kinase (JAK) inhibitors was going to pay off handsomely for shareholders. JAK inhibitors are small molecules that can interrupt the body's production of cytokines, which help cells communicate and play a role in cell growth and immune response. If JAK inhibitors can be developed to specifically target individual cytokines, then they could become valuable treatments for a wide range of cancers and autoimmune diseases.

Incyte started strong by earning marketing approval for Jakafi, now a blockbuster treatment for two blood disorders known as myelofibrosis and polycythemia vera. It stumbled a bit after that, which means shares are trading at almost half their all-time high. Not bad considering the business is worth $18 billion today.

After racking up a huge loss in 2017, the company rebounded in 2018 with a strong year of operations powered by Jakafi. 

Metric

2018

2017

Change (YOY)

Jakafi revenue (including royalties)

$1.58 billion

$1.28 billion

23%

Total revenue

$1.88 billion

$1.54 billion

22%

Operating expenses

$1.75 billion

$1.78 billion

(2%)

Operating income

$129 million

($243 million)

N/A

Net income

$109 million

($313 million)

N/A

Operating cash flow

$336 million

($93 million)

N/A

Data source: SEC filing. YOY = year over year.

The results in the table above were quite a relief to weary shareholders -- and the turnaround came just in time. Incyte will learn of marketing approval decisions for two new drug candidates in 2019, in addition to the results from three late-stage clinical trials. Importantly, the business is much better insulated against failure this time around. 

In addition to comfortably profitable operations and strong cash flow, Incyte entered 2019 with over $1.4 billion in cash, cash equivalents, and marketable securities. The company's pipeline also includes 19 different drug candidates targeting a wide range of diseases and being developed with seven unique partners. Considering shares trade at 29 times forward earnings and under 10 times sales -- both relatively cheap for a fast-growing pharma -- investors looking for long-term growth may not be scared away by the stock's rapid rise in early 2019. 

A worker installing solar panels on a roof.

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Cashing in on residential energy storage?

While Tesla has long mesmerized investors and homeowners with the possibility of combining solar panels and a battery, the reality is that the solar-plus-storage opportunity is still in its infancy. The economics just haven't been in favor of slapping a battery onto a home so it could jump off the local grid. That's still true for the majority of homeowners in 2019, but better technology (for both solar and lithium-ion batteries) means the opportunity will emerge soon.

Enphase Energy is looking to get in on the action. It overhauled its residential energy storage product portfolio to include a robust lineup of offerings -- and they'll debut in 2019. That likely won't have much of an effect on the income statement this year, but should lay the groundwork for the opportunity in the years ahead. Pouncing on the new growth area will be a whole lot easier now that the business is finally profitable.

Historically a major supplier of microinverters (the hardware allowing solar panels to deliver energy into your home or the power grid), Enphase Energy simply couldn't find a way to turn its expertise into a sustainable business. It posted operating losses in each year stretching back to at least 2013, but last year provided plenty of reasons for optimism about the near-term trajectory of the company. 

A green neon light in the shape of a battery.

Image source: Getty Images.

Enphase Energy posted an operating profit of $5 million in the fourth quarter of 2018 and $1.6 million for the year, compared to a loss of $39 million in 2017. The company reported operating cash inflow of $16 million in 2018, compared to an operating cash outflow of $28 million in the prior year. It'll get even better in 2019. 

This year, Enphase Energy will ramp up an important new supply contract that will see its IQ microinverters placed in SunPower solar modules, which should provide an annual revenue opportunity of $64 million at a gross margin of 34%. That will go a long way to pulling the business out of the unprofitable doldrums it has resided in for years, as will the growth of solar energy globally.

In the United States alone, solar power provided just shy of 100,000 gigawatt-hours of electricity in 2018, an increase of 25% compared to 2017. With costs falling at a precipitous rate and both utility-scale and rooftop projects being planned at a furious clip, Enphase Energy figures to be well-positioned to capitalize on the growth.