At first glance, Universal Display (OLED 0.87%) doesn't seem to have much in common with Skyworks Solutions (SWKS 1.34%). One develops basic technologies for OLED display and lighting products, and makes its hay from licensing these inventions to other companies. The other designs and manufactures a wide variety of semiconductors, with a heavy emphasis on wireless radio subsystems. Apples, meet oranges.
But their paths do cross in three important ways:
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Both are high-octane growth stocks, whose investors have their gaze firmly locked on the far future.
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Both rely on the exploding market for mobile computing systems, just from different angles.
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Neither ticker has been kind to shareholders over the last two years. Both stocks have plunged about 26% while the S&P 500 index marched upward by 17%.
So which of these mobile bets is the better hypergrowth play in 2013? My money is literally on Universal Display, and here's why.
Market opportunity
Skyworks is packed into a crowded field of direct competitors. Handset makers have many suppliers to choose from when designing their wireless communications systems. The company does benefit from a tight partnership with central processor giant Qualcomm, which gives Skyworks a leg up on many other suppliers, but every new contract is still a battle.
Universal Display has cornered the market on phosphorescent OLED technologies. Anyone who wants to make a display using these power-efficient materials has to get a license from Universal Display first. Research breakthroughs and the construction of large-scale manufacturing facilities in recent years have made OLED screens common today, chiefly in smartphones and tablets from Samsung. Going mainstream has done wonders for Universal Display's revenues.
PANL Revenue TTM data by YCharts.
For some investors, the choice might come down to brand loyalty. Skyworks counts Apple as one of its largest customers, and tends to rise and fall in tandem with the Cupertino stock. Likewise, Universal Display has hitched its wagon to the Samsung horse in a big way. Hence, you might feel like a traitor for placing a real-money bet on the stock across the aisle.
I wouldn't recommend locking your analysis into these rival camps, though. Skyworks may glean 29% of annual sales from Apple, but 17% comes from Samsung, and these two still make up less than half of the company's revenue pie.
Universal Display gets 80% of its revenue from just three customers, of which Samsung is the largest by far. But the OLED market is still in its infancy, and several display specialists are currently building brand-new factories to join the game later on. When that happens, Samsung will get plenty of OLED company on store shelves. One day, even Apple might join the OLED party. In fact, I'd be surprised if that didn't happen in the next two years.
The current focus on small smartphone and tablet screens will also soon make way for much larger TV sets, not to mention the as-yet-untapped general lighting opportunity. I could go on (and on, and on), but let's just say that the upcoming catalysts add up to tons of dynamite.
The final Foolish verdict
In short, I believe that Skyworks is a solid company married to an already mature market. There's nothing inherently wrong with that, and I expect the stock to beat the market in the long run on the back of its Qualcomm partnership. I've got a bullish CAPScall riding on that prediction.
But Universal Display has hardly begun its growth story. The growth opportunity here leaves Skyworks in the dust, which is why I've taken this CAPScall to the next level and actually own the stock in my real-world portfolio.
