Taking Stock: Universal Display

Dear Mr. Berko:

Last February, my broker bought 300 shares of Universal Display at $35.45. While this $10,000 investment only represents a tiny portion of my account, I'm uncomfortable with it because it's one of those darn tech stocks that I promised I'd never own again. I called my broker and told him to sell it, but he convinced me to wait a few months. Now I have an unexpectedly huge profit. I'm also nervous because I don't want to lose that profit, and my broker wants me to continue to hold the stock. He thinks this stock is the greatest thing since sliced bread, and I do not understand his explanation. Please tell me what this thing is. Should I hold my position or take a profit? I don't understand what this company does or why I should own a company with no earnings, less than $30 million in sales and sells at a ridiculous $50 per share.

J.L., Oklahoma City

Dear J.L.:

Universal Display (PANL-$51.50) is a high-tech company, and frankly, I don't understand hi-tech stuff, which may be obvious from some columns I've written over the years. I don't understand things that sit there like a boulder, get warm, then hum, buzz, blink and glow like an iridescent rainbow.

But I understand PANL enough to tell you it's involved in the research, development and commercialization of OLED technologies and related materials. And I know that future applications for organic light-emitting technology are boundless.

PANL licenses its organic technologies to manufacturers of products with display applications such as cellphones, laptops, flat-screen TVs, weapons and military systems, portable media/entertainment devices and the lighting industry. As of this week, PANL has 1,093 patents issued and pending.

In the trailing 12 months, PANL posted revenues of less than $30 million and posted a loss of about 51 cents per share. And as long as I've known PANL, it has never earned a dime or a drachma.

Operating margins are a minus 54 percent; return on equity is a negative 33 percent, while operating cash flow dances in negative territory. How can a company with bupkes in revenues have a market cap of $2 billion? How can a company with zero earnings trade at $50 per share?

But last March, Goldman Sachs, UBS, Oppenheimer, etc., lead a secondary offering of 5.75 million shares at $46 per share, netting $249 million for a company with dinky revenues and no earnings. Go figure!

Now, I don't know "bu" about PANL, and I know even less than "bu" about the OLED business. But one of the most brilliant money mangers whom I know and respect--who is the sixth- or seventh-most-knowledgeable person on the planet about Universal Display and knows more about OLED technology than 99.9 percent of the planet's population--has convinced me that PANL has the earnings potential to trade between $700 to $900 per share. Either Goldman Sachs, etc., are uncommonly bullish or incredibly stupid to monkey with a dinky $250 million underwriting for a company whose 2011 revenues in hundred-dollar bills would weigh less than 50 pounds and earnings that wouldn't fill a teacup.

Well, Goldman isn't stupid; rather, they're fairly keen folks. So much so that the $46 a share secondary offering was oversubscribed and rose to $50 the next day. And like the money manager who began telling me about PANL a few years ago when it was $11, Goldman and friends have a very positive view of PANL and its OLED technology.

So, this summer, when Goldman publishes a research piece on PANL, you may feel better about your 300 shares. Ain't a stock for widows, children of widows or orphans, but there's likely to be interesting times ahead.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Fri, Apr 8, 2011