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OLED: This technology will be a marathon, not a sprint

OLED: This technology will be a marathon, not a sprint

Shares of organic light-emitting diodes display chemical and intellectual property company Universal Display (OLED) have been hard hit this past week, falling more than 17% through last night’s market close from a high of $208 per share back on January 18, 2018. While a drop such as this can be hard to swallow, maintaining context and perspective is always important and the reality is the shares have simply retraced back to their mid-December level. Clearly, OLED shares were a strong performer closing out 2017 and the first few weeks of 2018 as data showed robust iPhone X sales in the December quarter.

The recent drop in OLED shares, however, reflects growing chatter across Wall Street over lower iPhone X shipments to be had in the coming quarters. While we are less than thrilled with the pullback in OLED shares, we also recognize that suppliers, direct or indirect, that live by the Apple, can be hit by the Apple. It’s also quite true that the late December-early January move pushed OLED shares into over bought territory.

Here’s the thing, while many are focusing on Apple as the main thesis behind the push in Universal Display share price, the reality is we are still in the early innings of organic light emitting diode display adoption. Other devices and applications — TVs, smartphones other connected devices interior automotive lighting, and eventually general illumination — are still just beginning to incorporate this Disruptive Technology. Rather than focus on quarter to quarter moves by a well-known adopter, we will continue to play the long-game when it comes to organic light emitting diode display adoption and in turn, OLED shares.

For subscribers that have missed the run in OLED shares thus far, I suggest holding off adding the shares until Apple reports its December quarter results on Feb. 1 so any and all bad news to be had is priced into the shares. If the group think on iPhone X shipments is right, it will offer a great long-term entry point for OLED shares.

  • Our long-term price target ahead of any tax reform benefit to be had remains $225.
Apple: Don’t listen to the short-term chatter

Apple: Don’t listen to the short-term chatter

 

Over the last few days there has been a slew of headlines for Tematica Investing Select List holding Apple (AAPL), one of the core companies behind our Connected Society investing theme. There has been an upgrade of the shares as well as a downgrade, respectively, by investment firms Maxim and Longbow Research. That’s not the only push/pull that we’ve seen in the share price. The other has been favorable data vs. the historical seasonal downtick in smartphone volumes as we move from the December quarter into the March one.

The favorable data came in the form of the latest CIRP numbers, which indicate Apple increased its U.S. iPhone activations ten points in the final quarter of 2017, from a 29% share in the September quarter to 39% by December. More significantly, new phone activations were up five points year over year, from 34% in Q4 2016 to 39% in the same quarter last year.

Part of the downgrade at Longbow, which lowered its rating to Neutral from Buy, likely stems from the seasonal slowdown in smartphone sales we are once again hearing about from component suppliers. Given the magnitude of the iPhone on Apple’s overall business, it’s not surprising that this is once again coming into focus. Apple has previously warned that investors should avoid reading too much into supply chain speculation because of its size and complexity. With Apple having launched three new flagship products in 2017, including the higher-priced and higher-margin iPhone X, we’re not going to overthink this but we will be paying attention.

Apple is set to report its December quarter earnings on Feb. 1, which will give us all the key metrics for the quarter. Odds are Apple will offer some vague guidance on smartphone volumes, and the earnings conference call will likely be littered with folks trying to get Apple CEO Tim Cook and others to spill something. But Apple has been doing this a long time, and they are well rehearsed in not answering questions they don’t want to.

This means zeroing in on what is said by key suppliers in the Apple ecosystems both ahead of Apple’s reporting date and after. The day before Apple’s earnings, Qualcomm (QCOM) will issues it results. Soon after, we’ll hear from RF chip company Skyworks Solutions (SWKS) and chip company Cirrus Logic (CRUS), which focuses on audio and voice signal applications and reports on Feb. 5. Another company I’ll be listening to is Broadcom (AVGO), which supplies a variety of connectivity chips including Bluetooth and WiFi to the smartphone markets as well as others.

As we look to put these iPhone outlook puzzle pieces together, there are other moves afoot at Apple. Yesterday, as part of its tax repatriation moves, the company announced that over the next five years it expects to contribute $350 billion to the US economy, create 20,000 jobs in the process, and bump up its Advanced Manufacturing Fund to $5 billion from $1 billion. The stock market greeted that news with open arms as Apple shares moved higher. The real move to be had, however, will be when Apple shares its view on how tax reform will impact its 2018 EPS. Current estimates call for the company to earn $11.46 per share this fiscal year, up from $9.21 last year. We’re also be listening to see if Apple ups its quarterly dividend of $0.63 per share or authorizes another share repurchase program.

Understandably, that news took over the headlines, but there was other news to be had. According to a new report from Variety, following the pull out by HBO, Apple will take over the lease at a new Culver City, California 128,000-square-foot development. This adds to Apple’s Los Angeles area footprint in a meaningful way, seeing that Culver City is also the location where Beats is headquartered. The widespread belief is this will be the space where Apple houses its original content efforts. After sitting on the sidelines for a number of years, Apple is slowly dipping its toe into the content creation waters, moving past that silly Carpool Karaoke show with pending programs with Reese Witherspoon and Jennifer Aniston, Nichelle Tramble Spellman’s “Are You Sleeping,” and a 10-episode comedy sketch show starring Kristen Wiig.

Despite its reputation, Apple tends not to be a first mover, but rather one that makes its move at the tipping point of a technology or consumer behavior. We’ve seen this time and time again with new technologies and the iPhone, and we suspect we are seeing this with its push into original content. Given Apple’s array of connected devices and changing demands from viewers that increasingly opt to stream the content they want, when they want it, on the device they want it on without having to buy it, the direction makes perfect sense. From our perspective, here at Tematica, it was only a matter of time for Apple to make this move as it looks to follow the example set by Netflix – leverage original content to lure subscribers — to make its devices even stickier with consumers. Hopefully, Apple will have a stronger starting lineup than Amazon (AMZN) has with its original Prime Video offering.

Finally, it appears that we will soon see Apple’s virtual assistant in a smart speaker, better known as HomePod, hitting shelves. Reportedly, Apple supplier Inventec has started shipping the device, and expectations are that between Inventec and Hon-Hai Precison Industry, the other HomePod supplier, Apple will ship 10-12 million units in 2018. Much like other new non-iPhone products, including the Apple Watch, the HomePod probably won’t have a significant impact on Apple’s revenue and earnings during its first year, but it does help shore up Apple’s efforts in the Connected Home alongside Apple TV at a time when Amazon and Alphabet/Google are making inroads.

And here’s a wild thought, given all the digital assets at Apple’s disposal and its growing presence in the payments industry, how long until we hear rumors of an “AppleCoin”?

The bottom line on Apple is we continue to see the company as a core holding of our Connected Society and Cashless Consumption investing themes, and the added tailwind of our Content is King investing theme could improve its position in our increasingly digital lifestyle.

  • Our price target on Apple shares remains $200, and we are inclined to be buyers on weakness following the company’s December quarter earnings report on Feb. 1

 

Jana’s issue is parental responsibility, not Apple’s

Jana’s issue is parental responsibility, not Apple’s

Over the last few days, our Apple (AAPL) shares have risen but underperformed the larger movement in the technology-laden Nasdaq Composite Index. Some of this could be attributed to the lack of Apple’s presence at CES 2018, an event that is teeming with virtual assistant wins for Amazon’s (AMZN) Alexa be it in cars, PCs, and household as well as bathroom appliances. Also throwing some cold water on Apple shares this week has been a resurgence in concern over the addictive nature of smartphones. That follows statements from activist investor Jana Partners and pension fund California State Teachers’ Retirement System urged Apple to develop new software tools to help parents limit phone usage as well as study the mental health impacts of spending excessive time on mobile devices.

Concerns over the addictive nature of technology are nothing new. We’ve heard similar arguments with video games, and yet we are now seeing the rise of professional e-sports teams complete with corporate advertising, arenas, and sponsorships. Halfway through 4Q 2017, the media picked up on comments over the addictive nature of Facebook (FB) made by former president Sean Parker.

As we think back on this, it echoes comments from decades ago that “TV will rot your brain, kid” and yet in recent years we have seen a shift in how and where we consume video content.

Perhaps smartphones and social media may be addictive, but we also have to recognize they are the Swiss army knives for how we consume information and other content, shop and transact, and communicate. The short of it is, these devices touch many facets of our daily lives, and if what we are hearing at CES 2018 it looks like they will be touching more of it.

Getting back to Apple, the company has had parental control settings in its iPhone and iPads dating back to 2008. These controls have allowed for the restriction the kinds of apps, movies, games and other content children can access. With iOS 11, Apple added a “Do Not Disturb While Driving” feature as it continues to stress both safety and privacy.

Will Apple make additional changes? Apple has already shared it will make its current crop of tools more robust, which likely means it will be a topic at this year’s World Wide Developer Conference, Apple’s seemingly annual showcase for its software. We see that as Apple doing the right thing, but we would be remiss if we didn’t point out that it is a parent’s responsibility to oversee a child’s screen time – be it on a smartphone or TV – rather than pas the buck to Apple or one day Samsung, Sony or another company. After all, let’s remember that all of these devices come with an off switch for a reason.

This likely means the current headlines will likely pass and investors will once again focus on the current iPhone upgrade cycle, growing services business, and new products both from the company, like the Home Pod, and others that will make the iPhone a very sticky device. Data suggests iPhone ASPs will benefit from the mix shift toward higher priced and higher margin iPhone X upgrades this quarter, and we are already hearing about new iPhone models for 2017 that will adopt organic light emitting diode technology, a positive for the Universal Display (OLED) shares on the Tematica Investing Select List.

  • We continue to rate Apple (AAPL) shares a Buy with a $200 price target.
  • We continue to rate Universal Display (OLED) a Buy with a $225 price target.

 

 

The November retail sales report is great news for the Tematica Investing Select List

The November retail sales report is great news for the Tematica Investing Select List

Today we received a better than expected print for the November Retail Sales report, which rose 0.8% month over month compared to the 0.3% expected increase. Viewed on a year over year basis, the headline November figure, which includes retail and food sales, climbed 5.8%. Backing out food, motor vehicles and parts, retail sales in the month soared 6.3% year over year. While we’re going to focus on the retail aspect of the report, we’d note the downtick in food sales bodes rather well for our position in McCormick & Co. (MKC) shares.

In a nutshell, the overall November report was rather bullish for a number of Connected Society and Cash-Strapped Consumer positions on the Tematica Investing Select List as well as several others. With that said, let’s get to the nitty-gritty…

The three standouts in the November retail data were:

  • Gasoline Stations (up 12.2%)
  • Building Materials (up 10.7% year over year)
  • Nonstore Retailers (up10.4% year over year)

The fact that Building Materials and Nonstore Retailers were stalwarts was not a surprise, given post-hurricane building efforts and the digital shopping data for the Thanksgiving – Cyber Monday holiday shopping period. We see these data points as rather confirming and positive for our positions in LSI Industries (LYTS), Amazon (AMZN), and United Parcel Service (UPS) and to a lesser extent Alphabet (GOOGL) shares.

The 3.6% year over year increase in general merchandise stores is, in our view, another reason to expect an upbeat earnings report from Costco Wholesale (COST) after today’s market close. As a reminder, with the shares bumping up against our $190 price target, we are in the process of reviewing additional upside. Today’s earnings report will be a factor in that analysis.

Despite the favorable November results for Sporting good, book and music stores (up 2.9% year over year), it wasn’t enough to bring the trailing 3-month total into the black. We continue to see a tough road ahead for these categories in the traditional brick & mortar environment as they feel the one-two punch of not only our Connected Society investment theme, but also Amazon flexing its muscles in an effort into private label products such as exercise and sports apparel.

Finally, electronics & appliance stores experienced a 6.4% bump year over year, clearly the strongest period in the trailing three-month period. While some of this is likely due to post-hurricane rebuilding efforts, we would note Apple’s (AAPL) iPhone X went on sale early in November and electronics was a big contributor to the holiday shopping spend.

  • Our price target on McCormick & Co.  (MKC) shares is $110
  • Our price target on LSI Industries (LYTS) shares is $10
  • Our price target on Amazon (AMZN) shares is $1,400
  • Our price target on United Parcel Service (UPS) shares is $130
  • Our price target on Alphabet (GOOGL) shares is $1,150
  • Our $190 price target for Costco Wholesale (COST) shares is under review.
  • Our price target on Apple (AAPL) shares is $200.
Barron’s Gets Behind our OLED, AMAT and DIS Positions

Barron’s Gets Behind our OLED, AMAT and DIS Positions

Over the weekend, among its many articles Barron’s published two pertaining to several positions on the Tematica Select List — Disruptive Technology plays Universal Display (OLED), Applied Materials (AMAT) and Content is King company Disney (DIS). In our view, each of these articles is bullish for the corresponding shares, but even so let’s review:

In “Corning, Samsung: China’s OLED Spend May Be Big Trouble in 2018, Says Bernstein”  following conversation with 23 companies and industry experts, investment firm Bernstein share their view that, “China is a big force in a rise in spending for display technologies, particularly, OLED, which is taking over from LCD, and also for spending on semiconductors, with the move to so-called 3-D NAND chips.”  The authors of the report go on to say:

“OLED capacity ramp-ups from the Chinese players are even more aggressive than we thought, and hence equipment and material players are benefiting from this ‘OLED capex cycle’. On the semiconductor equipment side, we are seeing a similar story – rising capex for 3D NAND coming from China will translate into good demand for semi equipment makers. Finally, for memory, DRAM supply is tight for now, so read-through is positive for DRAM pricing through 2017.”

We certainly see this rather positive and confirming for our investment thesis on Universal Display and Applied Materials. While many have and will likely continue to focus on Apple (AAPL) and its next iPhone iteration, we see a larger shift going on, much like the one we saw more than a decade ago when light emitting diode (LED) technology exploded. As LED applications expanded from mobile phones and backlighting for LCD TVs to automotive lighting, Cree (CREE) shares took off, which was very positive for our readers at the time since we had a Buy rating on the shares at the time. This time around, we see the same happening for Universal Display shares, especially since we see Universal’s business benefitting from its intellectual property licensing business. In our view that makes the company more like Qualcomm (QCOM) than Cree.

Turning to the second article, “Disney’s Iger On Movies, Parks, ESPN” the author hits a number of points that power our investment thesis — an improving movie slate and recent park price increases that should drive revenue higher this year. The article also bangs a familiar drum that is ESPN, which continues to hemorrhage customers as more and more cut the cord, but it also mentions that Disney is expected to launch its own over the top ESPN service later this year as well as ESPN landing on other over the top services like our own AT&T’s (T) DirectTV NOW. As we recently shared, Disney is also focusing on cost control inside ESPN, including laying off TV, radio, and online personalities as part of a plan to “trim $100 million from the 2016 budget and $250 million in 2017.”

Getting back to Disney’s film business, its latest release, live-action “Beauty and the Beast” delivered a record-setting weekend box office opening with $170 million. Not only was this a record-setting March opening weekend, but the seventh largest domestic opening of all-time. Internationally, “Beauty and the Beast” delivered an estimated $180 million in ticket sales from 44 material markets for an estimated $350 million global opening, making it the #14 on the all-time best list. We can already see the Disney merchandise flying off the shelves now and later this year when the DVD and video on demand releases hit just in time for year-end holiday shopping. Much the way Disney is adding Frozen and Star Wars franchise attractions to its park, we would not be surprised to see a Beauty and the Beast addition as well.

  • We continue to rate Universal Display (OLED) shares a Buy with a $100 price target.
  • Our rating on Applied Materials (AMAT) remains a Buy with a $47 price target. 
  • We continue to rate Disney (DIS) shares a Buy with a $125 price target.
Many Reasons to be Bullish on This Semi-Cap Company

Many Reasons to be Bullish on This Semi-Cap Company

We are adding shares of Applied Materials (AMAT) to the Tematica Select List as the company’s business is poised to benefit from our Disruptive Technology investing theme over the coming 12-24 months. Applied Materials is a leading nano- manufacturing equipment, service, and software provider to the semiconductor, flat panel display (FPD), and solar industries. In short, it builds the capital equipment that is used to manufacture chips, display and solar panel components. Our price target of $47 offers upside of roughly 30 percent and equates to just over 17x expected 2018 earnings in the range of $2.75 per share. By comparison, consensus expectations call for AMAT to deliver EPS of $2.55-$2.60 this year, up from $1.75 in 2016. Our rating is a Buy up to $41-$42.

Why We’re Adding AMAT Shares to the Tematica Select List

It’s been a while since we’ve seen the TV ad touting cotton as the fabric of our lives. Over the last few years, as we’ve been migrating more and more into the digital society, we’ve thought the new fabric of our lives is chips. As we know from our devices, be it a laptop, smartphone, tablet, we are facing the need for more computing power, greater connectivity speeds and more connections into more things (cars, homes, and that Internet of Things thing).

There are also newer and in some cases disruptive technologies — like emissive display technology organic light emitting diodes (OLEDs), a technology that is catching fire in the smartphone market, TVs and wearables. In short, there is a pronounced increase in the for chips, which is also spurring a pickup in new semiconductor capital equipment. We know this given our existing position in Universal Display (OLED) shares.

Exiting December, North America-based manufacturers of semiconductor equipment posted $1.99 billion in orders worldwide and a book-to-bill ratio of 1.06, according to the December Equipment Market Data Subscription (EMDS) Book-to-Bill Report published by SEMI. December bookings rose more than 28 percent compared to November 2016 and were up nearly 48% on a year over year basis.

In the recently reported January quarter, Applied’s order book rose more than 85 percent year over year, as orders for its silicon and display businesses rose more than 85 percent and 200 percent, respectively. The silicon business is benefitting from strong 3D NAND demand, given significant power and performance advantages over other memory solutions, as well as silicon to power applications, 4K video, as well as compute-intensive applications like artificial intelligence and smart vehicles.

 

As part of the Internet of Things, we’re seeing sensors and communications being added to a variety of commercial and consumer products as well. These and other applications are, on a combined basis, driving robust demand for additional semiconductor capacity and that is fuel for Applied’s semiconductor business. We see this reflected in capital spending budgets at companies like Intel (INTC), which is boosting its 2017 budget by $2.5 billion year over year to $12 billion. Taiwan Semiconductor (TSM)‘s 2016 capital spending came in at $10.2 billion, ahead of the expected $9.5 billion, and the company is slated to spend another $10 billion in 2017.

The accelerating ramp in OLED display demand was the primary driver of that robust Display order activity, and Applied noted the demand has only strengthened over the last several months. “In the past few months, our view of display spending has strengthened further. We now see customers increasing their investments by around $3 billion in 2017, $1 billion more than we thought in November. Our early view of 2018 is also positive.” It added: “50% of our demand going forward for this year is new customers for the mobile OLED”, with orders improving across all of its mobile OLED customer base. We strongly suspect a significant factor in this ramping Display demand is Apple (AAPL) adopting OLED displays in its next iPhone iteration. Odds are that shift will push other smartphone vendors to adopt OLED display.

One overarching driver over the long term is ramping capacity for semiconductor capital equipment and display technologies in China as it consumes a growing number of devices. In total, wafer fabrication equipment (WFE) sales in China are expected to reach $7 billion in 2017, compared to $6.7 billion in 2016 and $3.4 billion in 2013, according to SEMI, with more significant spending likely in 2018. With easier export controls in China compared to several years ago, companies like Applied can now ship more advanced tools into the country.

Against such a rosy outlook, we’d note semiconductor capital equipment demand tends to be dependent on the health of the economically sensitive semiconductor and consumer electronics industries. This means that we will continue to keep our eyes tuned not only to chip demand and fabrication utilization levels, but also the underlying economic tone of the global economy.

Valuation and Price Target

Our $47 price target equates to 17-18x expected 2017-2018 EPS, which we’d note is a discount to 52-week high price multiples in the range of 21-22x earnings that were accorded to AMAT shares during 2015 and 2016. On the downside, AMAT shares have bottomed out at roughly an average P/E multiple of 12x over the last few years. Applying that multiple to slated 2017-2018 earnings points to downside near $30-$32, and those are levels near which we’d look to scale into our position on share price weakness, as along as the current outlook remains intact.

 

The Bottom Line on Applied Materials (AMAT)
  • We are adding shares of Applied Materials (AMAT) to the Tematica Select List.
  • Our price target of $47 offers upside of roughly 30 percent.
  • Our rating is a Buy up to $41-$42.

 

Applied Material’s Outlook for OLEDs Boosts Our Universal Display Price Target

Applied Material’s Outlook for OLEDs Boosts Our Universal Display Price Target

This morning our shares of Disruptive Technology play Universal Display (OLED) are once again climbing higher. We attribute this to the bullish comments that compound semiconductor capital equipment company Applied Materials (AMAT) shared on the organic light emitting diode market on its earnings call last night. Given the current industry shortage for organic light emitting diode displays, AMAT has been a company to watch for potential capacity increases, and AMAT signaled that in a big way last night when it said,

  • “…In the past few months, our view of display spending has strengthened further. We now see customers increasing their investments by around $3 billion in 2017, $1 billion more than we thought in November. Our early view of 2018 is also positive.”
  • “50% of our demand going forward for this year is new customers for the mobile OLED” with orders improving across all of its mobile OLED customer base.

Taken together, these comments confirm the growing adoption of organic light emitting diode displays in the mobile market, principally in smartphones. Reading between the lines, we suspect part of the large increase from “new customers for the mobile OLED” is a thinly veiled reference to Apple (AAPL) and its 2017 iPhone refresh. Looking past mobile, we continue to see growing demand for this disruptive display technology from TV and wearable applications as well as those in Internet of Things applications.

On the back of this news, we are boosting our price target on OLED shares to $80 from $68, which offers upside of just over 10 percent from current levels. Our next catalyst for the shares will be when Universal Display reports its quarterly earnings on Feb. 23. Given the industry developments, we expect the company to offer a bullish outlook for 2017 and beyond. Even so, we’d need to see either upside in the shares in the range of $85-$90 or a pullback below $65 to warrant a Buy rating on OLED shares.

  • We are maintaining our Hold rating on OLED shares even as we bump up our price target to $80 from $68.

FOX Sports GO Live Streaming App Offers MultiView on Apple TV 

Another step in the appification of TV that also offers the ability to watch multiple games at the same time. Paired with the new Papa John’s ordering app also on Apple TV, it’s another reason not to get off the couch once NFL season kicks into gear.

With FOX Sports GO, Apple TV users who receive FOX Sports TV networks through their pay-TV subscription can now access FOX Sports, FS1, FS2, FOX Sports Regional Networks, FOX College Sports, FOX Deportes, and FOX Soccer Plus on their Apple TVs directly through the app. In total, users can watch more than 3,000 live events — including content from the NFL, MLB, UFC, NASCAR, Big 12 and Pac-12 Football, Big East Basketball, FIFA World Cup, and UEFA Champions League soccer — along with hundreds of hours of studio shows and original content. In addition, FOX Sports GO on Apple TV offers several new features, including a 60 frames-per-second streaming rate and a Multiview Display option, which lets users watch up to four FOX Sports live streams on one screen at the same time.

Source: FOX Sports GO Live Streaming App Arrives on Apple TV | High-Def Digest

KFC officially launches Apple Pay at US restaurants $YUM $AAPL

KFC officially launches Apple Pay at US restaurants $YUM $AAPL

A step in the right direction for Cashless Consumption, and we have to wonder if KFC is a test bed for other Yum Brands (YUM) chains such as Pizza Hut and Taco Bell.  One more step toward the Cashless Consumption tipping point that is being spurred on by our Fattening of the Population investing theme.

 

The option is now available at “some” U.S. locations, and should eventually reach all of them by the end of the summer, KFC said. Like some other restaurants, people will be able to use Apple Pay both at the counter and in drivethroughs. The rollout is part of a broader adoption of mobile payments at KFC, as the restaurant is now also accepting Android Pay and Samsung Pay.

Source: KFC officially launches Apple Pay at US restaurants