3 Reasons to Buy and Sell Universal Display in 2013

The next generation of display technology will be centered upon organic light-emitting diodes, or OLEDs. The technology's viability in mainstream applications continues to ramp up in conjunction with advancements, but its advantages over traditional LEDs and other display technologies are too promising for investors to ignore.

As the dominant supplier of OLED materials and intellectual property, Universal Display  (NASDAQ: OLED  )  has a bright future ahead of it. To break down exactly how investors should understand this company, the Fool recently crafted a premium research on Universal Display, a brief excerpt from which we've included in the text below. Enjoy!

3 reasons to buy

  • OLED technology has significant benefits over traditional LCD display technology, and display manufacturers are committing themselves to this next generation of displays. Samsung is investing $6.4 billion (more than Universal Display's market cap) in OLED facilities in 2012 while cutting LCD investments in half to $1.8 billion.
  • Universal Display is the largest holder of intellectual property related to OLED technology. The company continues to grow its patent portfolio through research and development, as well as acquisitions, such as the recent agreement to purchase 1,255 OLED-related patents from FUJIFILM for $105 million. This patent portfolio will continue to generate royalty and license revenue.
  • The high-margin materials sales business continues to grow, and is now the majority of revenue. This segment will benefit directly from the higher unit volumes associated with OLED adoption as device makers continue to deploy the technology in smartphones, TVs, and other consumer electronics applications.

3 reasons to sell

  • OLED remains a young technology and it may not see widespread adoption due to low manufacturing yields and high expenses. Competing fluorescent OLED technology that predates Universal Display's phosphorescent OLED technology could become a viable alternative, especially if rivals can develop it in a more cost-effective way.
  • Universal Display's short-term results are highly volatile and vulnerable to the decisions of just a couple of high-profile customers. Macroeconomic uncertainties tend to weigh on consumer electronics purchases as discretionary incomes become stretched, which subsequently affects the company's results.
  • Universal Display is constantly involved in patent litigation, and competitors and customers both regularly attempt to invalidate its intellectual property in order to avoid paying royalty and licensing fees. Patent decisions in other countries have greater impact on Universal Display since its customer base is concentrated in South Korea and Japan, where courts may have an incentive to favor local companies.

Universal Display has a powerful patent portfolio behind OLEDs, a technology poised to dominate the displays of the future. Its placement at the center of OLEDs makes the company an underappreciated way to play the enormous sales growth in tablets and smartphones. However, like any new technology, there are plenty of risks to Universal Display. Motley Fool analyst Evan Niu, CFA, has authored a new premium report that dives into reasons to buy the company as well as the challenges facing it. For access to this comprehensive report, simply click here now.


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