The efficient market hypothesis works, but only if your timescale is infinite. Truncate your view to any other period of -- or moment in -- time and you're bound to be scratching your head at the method and madness of Mr. Market.

Method and madness it is indeed, as demonstrated by Universal Display Corporation (OLED 1.85%) and General Electric Company (GE 1.74%). The former is at all-time highs and valued well above its performance to date, but that's because investors are very optimistic about its future. The latter is being punished for not moving quickly enough with its transition to a digital industrial company, or in other words, it's being punished because investors are too impatient.

They may embody two distinctly different moods from Mr. Market, but now is the time to buy both stocks. Here's why.

A piggy bank with glasses on.

Image source: Getty Images.

Obvious growth potential

Universal Display Corporation has been publicly traded since 1996 but has only risen to prominence in the last year or two. In 2010, it had a market cap of $500 million. Today, it's valued at $5.8 billion. Why the sudden growth spurt?

About 10 years ago, management developed a strategy to fund research and development at universities and begin acquiring any and all patents related to a relatively unheard-of technology: an organic light emitting diodes, or OLEDs. They're capable of lighting up dynamic displays for TVs, smartphones, and other gadgets (maybe even light bulbs one day) with performance and energy efficiency that's tough to beat. They're only now beginning to really take off, replacing "older" technologies such as LEDs.

That's fantastic news for Universal Display Corporation, which has amassed 4,200 patents on OLED technology. Essentially, if you want to use OLEDs, then you need a license from the company. The strategy has worked beautifully well.

OLED Chart

OLED data by YCharts.

In fact, the strategy is working so well that the company is slowly decreasing its focus on manufacturing OLED materials and instead focusing on leveraging the incredible value of its patent portfolio and its technological know-how through contracted R&D. In 2016, roughly half of its $198 million in revenue was generated from cost-free licenses and royalties. That's up from just 32% in 2014. 





Materials revenue

$99.3 million

$113.1 million

$126.9 million

Licensing and royalties revenue

$96.1 million

$77.8 million

$63.2 million

Contract R&D revenue

$3.5 million

$0.2 million

$0.9 million

Gross profit

$172.6 million

$128.0 million

$149.7 million

Data source: SEC filings.

The cost-free revenue stream should continue growing for the next few years at least, perhaps in a big way. While Samsung dumped OLED technology to develop what may one day replace it, many other technology companies can't get enough of it. Rumors are swirling that Apple wants to tap LG Electronics to incorporate OLED screens into the next iPhone. LG would have to go through the same company it relies on for its OLED TV displays: Universal Display Corporation.

There are a few risks to consider as well. For instance, Universal Display Corporation relied on two customers for 91% of its revenue in 2016. It relies on just one company to supply the materials needed to manufacture OLEDs. And, of course, Samsung may be proven correct that true quantum dot displays (which don't exist today outside of a laboratory) will replace OLEDs in a decade or so. 

But revenue concentration should be expected (there aren't too many companies manufacturing displays) and the threat of quantum dot displays is still a distant one. For the foreseeable future, Universal Display Corporation will be taking advantage of a growth opportunity so obvious it hurts. That makes the stock a buy today.

Taking advantage of Mr. Market's impatience

Unless you've been living under a rock, you're probably aware that General Electric stock has hit some turbulence lately. Comparing recent performance to the S&P 500 provides a stunning visual of Wall Street's sudden pessimism since the beginning of 2017.

GE Total Return Price Chart

GE Total Return Price data by YCharts.

Simply put, investors have lost faith in the company's strategy since selling off its financial services unit. The worst part is that the company spent vast sums of money to build up its oil and gas business immediately before energy markets turned sour. The sagging performance weighed heavily on the company's first-half performance and figures to remain a headwind for the foreseeable future.

While John Flannery, who assumes the CEO role in August, has promised to provide investors a comprehensive overview of the company's composition and a path forward by November, the biggest long-term opportunity for General Electric won't change: the industrial internet.

The company's early focus on integrating and developing machine learning into all industrial segments -- from smart locomotives to predictive analytics for the Port of Los Angeles -- will have a compounding effect over time. But investors won't have to wait long: Digital offerings are the fastest-growing part of the business today. General Electric noted that orders for digital services and tools increased 39% in the most recent quarter compared to the first quarter of 2017. Orders for its software tools increased twofold. 

And although GE Digital is considered a small piece of the conglomerate, it's only small by General Electric standards: In 2016, it generated $5 billion in revenue. That's a significant level of revenue for a business that only came into existence in 2015. It's still capable of growing at a handsome clip, too. Year-over-year sales for the segment leapt 16% in the first quarter. 

The fact that digital services are so ingrained in General Electric's other industrial segments makes the stock an awesome long-term buy for investors. Why? It makes the company's more traditional products and services, from gas turbines to light bulbs, more valuable by increasing efficiency and reducing downtime, among other advantages. Wall Street's support may be wavering, but that impatience is an awesome advantage for individual investors.