OLED Investing Opportunities
Quick Profits from This Small Tech Company
You've been lied to.
Worse, these lies could actually end up losing you your hard-earned money.
I'll tell you what I mean in just a minute, but first, I have a short anecdote to share with you...
I used to know a prosecutor from Long Island who once told me, "Knowledge is power, but information is crippling."
You see, in criminal law, the prosecution is entitled to disclose its evidence upon request of the defense in a process called discovery.
When the team behind a prosecution is large enough, they can purposefully flood a smaller defense with information that is hardly relevant. The idea is to hide the useful information in a sea of data. You can imagine being the sole attorney on a case and receiving (literally) an entire van filled with documents...
Investors like you and me are delivered a van-full of evidence every day. Sifting through this information is incredibly daunting. Unless you are willing to spend 10 hours a day doing research, all that information is absolutely crippling.
(And that's assuming that the information is completely accurate. The only thing more debilitating to investors than too much information is information that is mistaken or misunderstood.)
Fortunately for us, I happen to have 10 hours a day to sift through a sea of information. Specifically, I'm fishing for key information on securities in the technology sector.
And from my experience, I can tell you that the deeper down you go, the more complex things become...
You see, investing in the tech sector isn't always like trading in other markets.
For instance, you don't need a deep understanding of the biological structure of grains to invest in wheat futures.
However, it is a major advantage if you understand the inner workings of a smartphone if you plan to invest in microchips or display technologies...
Early last week, rumors began circulating that Samsung was poised to buy OLED (organic light emitting diode) display technology company Novaled AG. (I'll explain more about OLED technology in just a minute.)
Now, whether or not this is true has yet to be determined. But that isn't the source of false information.
In fact, an acquisition is infinitely more likely than what investors and the media initially thought occurred.
When the announcement was made, those with surface-level knowledge threw on their bear suits and began yelling, "Run for the hills!" to anyone who owned shares in Universal Display (NASDAQ: OLED), a company I recommended to Energy and Capital readers on July 2.
This is because the largest chunk of Universal Display's revenue comes from Samsung.
If you know very little about OLED displays and what these companies actually do, it would have seemed completely plausible that Samsung was planning to ditch Universal Display for Novaled AG...
As a result, Universal Display traded down more than 10% on July 29 — and went on to close down for three consecutive days.
It wasn't until August 2 that the bears realized the truth: The technologies behind Novaled and Universal Display are actually complimentary, not competitive.
You see, OLED displays are composed of a number of different stacks (picture a layered cake), and both companies operate on different stacks. While Novaled's technologies operate in electron and hole layers, which work to facilitate the transportation of electrons, Universal Display operates within the emissive layer, which emits light and displays color.
The fact is Universal Display has a very strong position in emissive technology patents and faces no competition from Novaled on this front.
And this brings me to the second bit of false information that is still circulating on various financial websites and blogs, the misconception that Universal Display manufactures OLED displays.
This was a poor assumption even I made when I first began looking into Universal Display. But I quickly learned that the company earns its revenues through patent licensing and material provisions — not through manufacturing displays.
That part is left up to companies like Samsung.
Now, this information is important for a few reasons...
First, Universal Display's fundamental patents are set to begin expiring in 2017. That gives the company about four more years of dominance in the emissive layer of the OLED industry.
Second, it minimizes the downside arising from the fact that Universal Display is such a small company.
If the company actually made displays, it would be forced to undergo major infrastructural changes to meet the incoming demand of OLED displays. But because the company obtains much of its revenue by licensing its technology, it will be able to remain significant, so long as it holds its patent portfolio.
When OLED technology takes off (and it will), there will be a number of companies looking to Universal Display for licensing...
Currently, LCD (liquid crystal display) is the dominant player in flat panel technology. But OLED is beginning to interrupt the market, mainly as a result of its better performance features.
OLED displays are thinner, lighter, and respond faster than LCD screens. OLED also offers wider viewing angles, higher contrast ratios, and brighter colors. Plus OLED displays can be made to be flexible — offering a variety of new product designs, such as curved televisions and phones with wraparound screens.
Samsung's flagship smartphone, the Galaxy 4S, already uses an OLED screen. The rumored $200 million purchase of Novaled only points out the company's commitment to the budding technology.
Market research expects OLED revenues to reach close to $6 billion by 2015. In addition to smartphones, OLED displays will be used in notebooks and, more importantly, the next generation of televisions.
For those readers who are unaware, Samsung is the largest TV maker in the world — a fact that bodes incredibly well for Universal Display, considering its relationship with the tech giant.
Revenue from the Galaxy S alone grew from $30 million in 2010... to $61 million in 2011... to $83 million in 2012. And that's with a screen only five inches in size.
The average television size across leading providers is approximately 42 inches (that number increased by two inches just last year), which gives us somewhere around 750 square inches of screen. Compared to Samsung's 15 square inches of screen (I'm being very generous here), we're talking about fifty times the required material.
Of course, more smartphones are sold than televisions — but not fifty times as many.
In fact, there are only about 2.7 smartphones sold for every television unit.
Using those figures, the total surface area of television screens compared to that of smartphones is about 18.5 times (remember, that's still using the massive screen size of the Galaxy 4S).
And while 45% of Universal Display's revenue comes from licensing, 55% comes from material sales.
In other words, OLED televisions will offer Universal Display a tremendous upside if they penetrate the market, because the television industry will require more emitter material.
Fortunately for Universal Display, market research is expecting just that:
|Credit: NPD Quarterly Global TV Shipment Forecast Report|
You're not going to want to wait for OLED to penetrate the television market before getting in on Universal Display...
To start, rumors of Samsung buying Novaled make Universal Display a primary target for acquisition.
You will want to take advantage of this opportunity while it is still on the market.
Second, the short float for Universal Display is about 25%. As the company continues to boost earnings, we can expect a short squeeze as the bears decide to exit their position.
As for a buying opportunity, shares have seen a pretty consistent floor of about $28 since February. This floor has already been reestablished since the Samsung/Novaled rumor drove the stock down 10%.
However, it might be a while before we see Universal Display touch this floor again...
The company's most recent earning call has caused to stock to skyrocket 18% in a single day. This is because Universal Display announced record earnings of $50 million, up from $30 million in the second quarter of last year.
If you were paying attention to my call on Universal Display in early July, congratulations on your recent gains.
Turning progress to profits,
Energy and Capital's tech expert, Jason Stutman has worked as an educator in mathematics, technology, and science... Before joining the Energy and Capital team, Jason served on multiple technology development committees, writing and earning grants in educational and behavioral technologies. Jason offers readers keen insights on prominent tech trends while exposing otherwise unnoticed opportunities.