That helps explain why David's urging smart investors to keep an eye on Universal Display [Nasdaq: PANL], a pioneer in the development of organic light-emitting diodes (OLEDs). Using organic compounds that emit light when an electric current is passed through them, the electronics equipment company develops sharper, brighter screens for TVs, computers, tablets, and smartphones while using less energy than traditional liquid crystal displays.
The market for OLEDs in 2009 was only about $600 million, but market researcher DisplaySearch anticipates it will swell to a staggering $7 billion by 2016. So when most investors would be thinking about selling shares of this innovator after it has climbed 433% since David's recommendation in June 2005, David jumped back in for more last July. That pick is up nearly 173%. Still, he thinks it's at least worth watching with such a large market opportunity and so many untapped ways this game-changing technology could be incorporated.
After all, the technology got off to a relatively slow because no applications spurred enough demand to entice manufacturers to invest in the production of OLEDs and, in turn, bring down costs. Smartphones have changed that. And with monochromatic screens going the way of the rotary phone, companies that make smartphones are in a race to make OLED-using handsets that are brighter, crisper, and (critically) that offer a longer battery life. As David wrote in his re-recommendation, "Apple [Nasdaq: AAPL] reportedly rejected an OLED display for the latest iPhone because no manufacturer could meet production demands. As problems go, that's a pretty bullish sign for Universal Display, and one that's unlikely to linger."
As the miss with Apple demonstrates, royalties are key for Universal Display. Getting into the right TVs, computer monitors, smartphones, and beyond will determine how successful the company will be. Signs are good thus far -- Samsung, the world's largest manufacturer of OLEDs, is a licensee of Universal Display and the company's primary source of income, and it also has licensed technology to LG Display [NYSE: LPL]. Universal also took the bold step of opening a new facility in Seoul, South Korea -- right around the corner from Samsung and LG (or at least a whole lot closer than New Jersey). That move bodes well for the long-term relationship with its existing -- and potential new -- clients.
With all this apparent success, Universal Display is still not profitable. David and team expect the company's revenue to double or more over the next two years and for the company to break even (or at least get a whiff of even) in 2012. The company also needs to maintain its focus on research and development -- it's been spending an average of $16 million to $20 million a year since 2002. While that might climb, it won't increase as rapidly as revenue. "So once the company is in the black," says David, "we think profits will grow very quickly."
OLEDs still aren't cheap, which might prevent adoption on the scale or at the pace that David would like. And to date, they haven't been good enough for Apple. But they have reached the tipping point, and other applications are on the horizon -- Universal Displays is working with the Department of Energy to develop lighting solutions, but it doesn't appear a solution will be viable for five to 10 years. As David says, if you think that low-power, high-contrast displays have a bright future, keep an eye on the brainpower behind the technology.
The title on David's business card is Chief Rule Breaker and as an investor, he loves when a company is willing to challenge the conventional wisdom, offering a new solution to a problem that many viewed as solved. His unofficial motto is, "Top it!" Which leads to...