Why I Just Bought More Universal Display

I've made no secret of my fondness for OLED-specialist Universal Display  (NASDAQ: OLED  ) . In fact, Universal Display currently stands alone as my single largest position in my personal portfolio, and I don't even mind the ridiculous roller-coaster ride I've endured as a shareholder since buying my first shares at $15.57 in May 2010.

Despite the volatility, however, those shares have managed to outperform the S&P 500's perfectly respectable 57% return since then by more than 17%:

^SPXTR Chart

^SPXTR data by YCharts.

In looking at that chart, though, it's almost comical how much the stock has fluctuated over the past three years compared to the market's relatively steady climb, and that's even as Universal Display has methodically built up its business around the ever-increasing influence of OLED-driven displays.

But as Warren Buffett wrote in his 2012 letter to Berkshire Hathaway shareholders, "Mae West had it right: 'Too much of a good thing can be wonderful.'"

That's why, early last week, I decided to add to my position in Universal Display.

And, yes, I'm well aware that adding to my already-large position in one company comes with its own risk. To be fair, though, this is a calculated risk I have no problem taking.

But why now?
Curiously enough, the last time I bought new shares of this company was June 2012, so why buy more now?

To be honest, part of it was simply having some cash available that needed to be put to work. Then again, it helped that shares of Universal Display also fell more than 16% in a single trading day last month after the company's first-quarter results disappointed investors.

So why am I not concerned those losses could continue?

As I wrote at the time, apart from the fact that last quarter so happened to be one of the periods during which Universal Display didn't receive one of its twice-annual payments from the six-and-a-half-year contract it inked in 2011 with Samsung, I couldn't find much not to like about the report.

Remember, though Universal Display technically lost $0.10 per share last quarter -- which was in line with estimates -- much of that loss was due to increased operating expenses. For their part, those expenses were largely the result of a combination of $2.7 million in amortization from their recently acquired patents from Fuji (which opens the doors for new OLED research), a $2.3 million increase in R&D costs (a great thing to see from an innovative company like UDC), and a $2 million rise in cost of materials ("due to an increase in the quantity of materials sold, changes in product mix, and increased raw material costs for certain products").

With this in mind, it's also important to note that UDC's sales rose 19% year over year to $15 million, beating consensus estimates that called for revenue of $14 million as more customers licensed and utilized the company's OLED materials and intellectual property.

Foolish takeaway
Even so, that didn't stop our inefficient market from imposing one of its trademark knee-jerk reactions to the "disappointing" quarter, much as it has for each of the five quarters since Universal Display signed the contract.

With the imminent ramp in OLED production coming from companies like Samsung, LG Display, Sony, and Panasonic, along with the rise of OLED lighting, potential revenue from bezel-free encapsulation tech, future integration of OLED into innovative products like Google Glass, and potential for OLED-enabled devices from Apple... well, let's just say if Universal Display's healthy cash position and current business aren't enough for you, its boundless future potential is exciting, to say the least.

And that, my Foolish friends, is why I bought more shares of Universal Display and intend to hold them over the long haul.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 26, 2013, at 11:26 PM, ScottAtlanta wrote:

    Yep! Excellent points.

    These are reasons it's my largest position also. But...I didn't go straight at it. A few months ago I bought shares after some research. I continued my research and realized that in fact, it was likely the strongest opportunity of all the stocks I considered. So I added more shares. I hesitated...heading the rule of diversification. Then I added more, two times more.

    Then, similar to your Mae West, I came up with my own quote...."sometimes it's wise to have all your eggs in one basket." I do have some diversification of course but I've placed a majority of my cash into OLED. If it's such a compelling basket after considerable research with tremendous upside potential...and you can manage the risk...like potentially losing 1/2 (though I think odds of that are quite low long term)...then it can be life altering. (e.g. a 10 bagger or more). It's currently 1.2 B....this can be a 12 B co. in a few years and on from there. Do you want to 10 bag a dollar or a 100 dollar bill?

    To add to your points: Recently awarded Best in Show at SID (a serious venue for lighting and display). Their display demonstrated their patented bezel-less encapsulation which allows for heretofore impossible ultra thin displays that are not susceptible to water damage (a significant technical hurdle for ultra thin display). Oh, they didn't buy that patent....they R and D'd it in house.

    CEO awarded Entrepreneur of the Year (for NJ and placing him in contention for national award by prestigious firm).

    Sid Rosenblatt (exec. VP and CFO) at recent annual meeting of shareholders described OLED as likely to be one of the top growth stories (in the early part) of the 21st century. He asked how many in audience were using Samsung phones (with AM-OLED screens) -- about 50% and then predicted that by next year the entire audience would be using OLED screens...seriously implying that Apple is lkely to make the switch due to the unmatched power efficiencies, color vibrancy, etc. of OLEDS vs. LED/LCD screens. He laid out the map to OLEDs growth, next gen. materials and process patents for TVs, lighting, and more (wearables, etc.).

    Finally....search OLED and smartphones and watch some of the videos on Youtube.com revealing this technology. You'll note the utlra thin (mm) screens that are flexible, rollable, bendable and unbreakable (even immune to multiple strikes with a hammer).

    Okay....that's my pitch. I've backed with real money. I accept the risks....I expect the rewards! Well, hope for the rewards!

  • Report this Comment On June 27, 2013, at 10:43 AM, 110254545yy wrote:

    This is a great opportunity to get in.

    Been watching it for a while.

    Great value

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