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.

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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