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Here’s what we’ll be watching for at today’s Apple special event

Here’s what we’ll be watching for at today’s Apple special event

Several of the Disruptive Technologies investment theme companies currently on the Tematica Select List will play a key role in the Apple Special Event scheduled for Tuesday, September 12th. In all likelihood the companies themselves will never be mentioned during the event, but with expectations once again running high ahead the next generation iPhone, here’s what we’ll be watching for as it pertains to the Tematica Select List.

 

Early this afternoon, Connected Society and smartphone reliant Apple (AAPL) will hold its next special event that is widely expected to unveil a bevy of new products, including its latest iPhone models. Much has been made over the last few days of “leaked information” over these new models as well as new iterations for Apple TV and Apple Watch, but as exciting as those other new products may be because the iPhone is the majority of Apple’s revenue and profits odds are investors will focus their attention on those new models.

While we don’t own Apple shares, and we touched on at least one of those reasons yesterday, there are several companies on the Tematica Select List that will be affected by today’s special event – Universal Display (OLED), Applied Materials (AMAT), and AXT Inc. (AXTI) as well as USA Technologies (USAT) and Nuance Communications (NUAN).

 

Universal Display (OLED) 

As subscribers should be aware, Universal Display is a Disruptive Technology investment theme company that supplies needed chemicals and intellectual property utilized in the manufacturing of organic liquid crystal displays (OLEDs). Over the last few months, there has been much talk of ramping demand in an industry that is capacity constrained as Apple begins to adopt the technology in the iPhone while other applications (other smartphone vendors, TVs, wearables and automotive interior lighting) continue to replace existing lighting and displays with OLEDs. There are now indications that Apple is likely to introduce OLEDs in its new premium iPhone, purportedly the iPhone X.

The issue, however, is that it is being reported that the manufacturing of iPhone X device is currently capped at around 10,000 units per day and may not begin shipping until next month. This could be due OLEDs supply constraints, but if this speculation over the iPhone X turns out to be true, we could see a pullback in our OLED shares, especially following the more than 18% move in the last month alone that has the shares bumping up against our $135 price target. We continue to think that as the adoption of OLEDs continues to ramp up, we will see a step-function higher in our price target for Universal Display shares, but in the near-term, our concern is that rapid climb in the share price could hit a “buy the rumor, sell the news” wall following Apple’s event. If such an outcome occurs, our view is subscribers should continue to hold OLED shares for the long-term. If the shares retreated to the $110-$115 level, which would be a sharp pullback, we would view that as another bite at the apple for subscribers that have so far held off buying OLED shares.

  • Our price target on Universal Display (OLED) shares remains $135
  • For now, subscribers that have missed out on OLED shares should look to scoop them up between $110-$115.

 

Applied Materials (OLED) 

If the supposition that Apple’s iPhone X production is capped because of capacity constraints for OLEDs, we see that being a resounding positive for shares of Disruptive Technology company Applied Materials (AMAT). As a reminder, Applied not only manufactures semiconductor capital equipment (the machines that make chips) it does the same for displays, including OLEDs. Applied has been rather frank about the robust demand for OLEDs, and it remains one of the reasons we are bullish on AMAT shares. Others include rising memory demand as well as ramping in-country semiconductor capacity in China.

  • Our price target on Applied Materials (AMAT) shares remains $55.

 

AXT Inc. (AXTI)

We would be surprised to hear Apple talk about 5G wireless technology, which would require several additional layers of RF semiconductors, largely because most wireless carriers like AT&T (T), Verizon (VZ) and T-Mobile USA (TMUS) are still testing the technology. If, however, the Apple Watch is updated to include LTE wireless technology, that would be a source of new demand for RF semiconductors, like those from Skyworks Solutions (SWKS) and Qorvo (QRVO). In turn, that means those companies, as well as other RF semiconductor suppliers of Apple’s, would require additional compound semiconductor substrates from AXT Inc. (AXTI). While we still see the eventual deployment of 5G networks that will drive incremental RF semiconductor demand as the key driver longer-term for AXT’s business, incremental demand from devices like Apple Watch is certainly welcome.

  • Our price target on AXT Inc. (AXTI) shares remains $10.50

 

USA Technologies (USAT) & Nuance Comm. (NUAN)

Finally, during today’s presentations, we’ll also be watching and listening for incremental news on USA Technologies (USAT), an Apple Pay partner, as well as Nuance Communications (NUAN). In iOS 11, Apple will continue to expand the services offered through Apple Pay, and we expect to hear at least some usage statistics from Apple CEO Tim Cook today. With Nuance, voice continues to become the new interface of choice across new applications from smart speakers to chat-bots, like those being rolled out by Google (GOOGL), Facebook (FB) and yes, Apple, and that keeps us bullish on NUAN shares.

  • Our price target on USA Technologies (USAT) shares remains $6
  • Our price target on Nuance Communications (NUAN) remains $21.

 

 

 

Once again, the herd catches up on Universal Display (OLED) shares

Once again, the herd catches up on Universal Display (OLED) shares

After languishing for several weeks, shares of Disruptive Technology company Universal Display (OLED) shares over the last two days popped $16, or more than 14%, to finish close last night at $127.10. The catalyst for the move was Deutsche Bank initiated coverage on the company with a Buy rating and a price target of $135, in line with our own.

While we like the herd catching up to our way of thinking, the surge in the shares comes with less than two weeks until Apple’s (AAPL) next iPhone event on September 12. We suspect over the next two weeks the iPhone rumor mill will be once again cranking up, with much chin wagging over the number of models, form factors and how many models will be employing an organic light emitting diode display. This likely means that at least in the short term, OLED shares are likely to melt higher, but as we’ve seen many, many times the devil is in the details when it comes to Apple’s new products. That means expectations in the near-term could get ahead of themselves, and we note this with 6% upside to our $135 target.


Make no mistake, we continue to see a bright future ahead for Universal Display and its organic light emitting diode chemicals and IP business over the coming quarters as the number of applications climbs alongside increasing screen sizes for smartphones and TVs. This has us long-term bullish on the shares, and while it’s likely that we might have to raise our price target on OLED shares again before the end of 2017, the risk we run in the very short-term is the shares are ahead of themselves at least temporarily.

Could this result in a “buy the rumor, sell the news” set up given Apple’s upcoming event? It’s possible, but given the medium- to longer-term growth prospects, we would see that as an opportunity for those that have missed out on scooping the shares thus far. As we’ve shared in the last few weeks, the $110-$115 share price band makes for a compelling proposition on risk-to-reward trade-off for patient investors. As new data becomes available, we’ll incorporate it into our thinking, including our price target.

  • At current levels, subscribers should “Hold” Universal Display (OLED) shares rather than commit fresh capital.
  • Our price target remains $135, but given expanding market applications for its products and licensing business, we’re inclined to be owners of the shares for the medium to longer term.
Samsung Electronics confirms our thesis on Applied Materials

Samsung Electronics confirms our thesis on Applied Materials

 

Given all the attention that organic light emitting diode displays are getting ahead of Apple’s (AAPL) pending launch of its next iPhone, it’s understandable that Applied Material’s (AMAT) display business would be the center of attention. Early this morning, however, Samsung Electronics confirmed the other key drivers behind our bullish stance on AMAT shares – ramping semiconductor capital spending to not only meet growing global demand for chips but also China’s intent to become a key manufacturing hub for chips.

With Samsung accounting for 12%-18% of Applied revenue stream over the last three years, we see Applied as very well positioned to capture capital spending dollars at Samsung for capacity in China as well as around the globe in the current and coming quarters.

  • Our price target on Applied Materials (AMAT) shares remains $55.

SEOUL (Reuters) – Samsung Electronics Co Ltd expects to invest $7 billion over the next three years to expand its NAND memory chip production in China’s northwestern city of Xi’an, the South Korean tech giant said on Monday. In a regulatory filing Samsung said it approved $2.3 billion of the expected investment of $7 billion on Monday.

The firm accounted for 38.3 percent of global NAND flash memory chip revenue in April-June, the latest data from researcher IHS showed.

China is trying to develop its own memory chip producers but it is likely to be several years before they can compete with existing makers, analysts said. Samsung Electronics said a memory chip boom that propelled it to record profit in the second quarter was likely to continue in the July-to-September quarter.

Source: Samsung Electronics to invest $7 billion to boost China NAND chip output

Bearish Thoughts on General Motors Shares

Bearish Thoughts on General Motors Shares

While higher interest rates might be a positive for financials, at the margin, however, it comes at a time when credit card debt levels are approaching 2007 levels according to a recent study from NerdWallet. The bump higher in interest rates also means adjustable rate mortgage costs are likely to tick higher as are auto loan costs, especially for subprime auto loans. Even before the rate increase, data published by S&P Global Ratings shows US subprime auto lenders are losing money on car loans at the highest rate since the aftermath of the 2008 financial crisis as more borrowers fall behind on payments. If you’re thinking this means more problems for the Cash-strapped Consumer (one of our key investment themes), you are reading our minds.

In 4Q 2016, the rate of car loan delinquencies rose to its highest level since 4Q 2009, according to credit analysis firm TransUnion (TRU). The auto delinquency rate — or the rate of car buyers who were unable make loan payments on time — rose 13.4 percent year over year to 1.44 percent in 4Q 2016 per TransUnion’s latest Industry Insights Report. That compares to 1.59 percent during the last three months of 2009 when the domestic economy was still feeling the hurt from the recession and financial crisis. And then in January, we saw auto sales from General Motors (GM), Ford (F) and Fiat Chrysler (FCAU) fall despite leaning substantially on incentives.

Over the last six months, shares of General Motors, Ford, and Fiat Chrysler are up 8 percent, -2.4 percent, and more than 70 percent, respectively. A rebound in European car sales, as well as share gains, help explain the strong rise in FCAU shares, but the latest data shows European auto sales growth cooled in February. In the U.S., according to data from motorintelligence.com, while General Motor sales are up 0.3 percent for the first two months of 2017 versus 2016, Ford sales are down 2.5 percent, Chrysler sales are down 10.7 percent and Fiat sales are down 14.3 percent.

In fact, despite reduced pricing and increasingly generous incentives, car sales overall are down in the first two months of 2017 compared to the same time in 2016.

 

So what’s an investor in these auto shares to do, especially if you added GM or FCAU shares in early 2016? The prudent thing would be to take some profits and use the proceeds to invest in companies that are benefitting from multi-year thematic tailwinds such as Applied Materials (AMAT), Universal Display (OLED) and Dycom Industries (DY) that are a part of our Disruptive Technology and Connected Society investing themes.

Currently, GM shares are trading at 5.8x 2017 earnings, which are forecasted to fall to $6.02 per share from $6.12 per share in 2016. Here’s the thing, the shares peaked at 6.2x 2016 earnings and bottomed out at 4.6x 2016 earnings last year, which tells us there is likely more risk than reward to be had at current levels given the economic and consumer backdrop.  Despite soft economic data that shows enthusiasm and optimism for the economy, the harder data, such as rising consumer debt levels paired with a lack of growth in real average weekly hourly earnings in February amid a slowing economy, suggests we are more likely to see GM’s earnings expectations deteriorate further. And yes, winter storm Stella likely did a number of auto sales in March.

Subscribers to Tematica Pro received a short call on GM shares on March 16, 2017

 

 

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.
Yet again, we’re boosting the Price Target for this Disruptive Technology company

Yet again, we’re boosting the Price Target for this Disruptive Technology company

Our shares of Universal Display (OLED) continued on a tear yesterday as they climbed more than 7 percent, bringing the year to date return to a staggering 55 percent. Last week the company reported robust quarterly revenue and earnings, which as we commented had a bullish outlook. In recent weeks, we’ve seen a positive piling on with regard to the shares and the robust outlook for organic light emitting diode displays, which includes adoption in Apple’s (AAPL) next iPhone iteration, but a number of other applications as well. We’ve used the last few days to revisit our 12-24 month price target on the shares, and we are boosting that one again to $100 from $85. At the current share price that new price target offers roughly 18 percent upside.

Given the sharp rise over the last few days, we aren’t surprised by the shares giving back some of the gains today. As we commented yesterday, President Trump’s speech to Congress tonight could present a bump in the road for the stock market, which has been on a steady move higher over the previous 12 days. We interpret that march higher as the market expecting some degree of details from Trump in his speech tonight. If the speech does underwhelm with scant details, we could see the market interpret that as a push out in the timing for Trump’s fiscal stimulus agenda and tax overhaul. Again, as we shared this morning, our view has been that we are not likely to see any impact from Trump’s initiatives until late in the second half of 2017 and the stock market needs to recognize that.

That’s a long way of saying we could see OLED shares pullback further tomorrow should the market get a case of digestion mixed with expectation resetting. Subscribers that are underweight OLED shares should view that as an opportunity given the ramping demand and industry capacity for organic light emitting diode displays.

  • Our new price target on OLED shares is $100, which has us keeping our Buy rating intact.
  • We continue to have a protective stop loss at $70 for the shares.
Reasons To Be Cautious Ahead of Trump’s Feb. 28 Speech?

Reasons To Be Cautious Ahead of Trump’s Feb. 28 Speech?

Subscribers to Tematica Investing received this commentary on Monday, Feb. 27 with specific instructions pertaining the Tematica Select List.

If you’ve missed our weekly Monday missive that is the Monday Morning Kickoff, we’d encourage you to pursue it later today as it offers both context and perspective on last week, including much talk about the Fed, and sets the stage for this week. We’ve got a lot of data coming at us, more corporate earnings that prominently feature our Cash-strapped Consumer and Fattening of the Population investing themes. There are a number of events and conferences as well, and before too long we’ll have some thoughts on this week’s Mobile World Congress, an event that meshes very well with our Connected Society, Disruptive Technology and Cashless Consumption investing themes. We expect to see a number of announcements ranging from new smartphone models, connected as well as autonomous vehicle developments, voice digital assistant initiatives, drones, and payment systems to name a few. We’ll be watching these with regard to a number of positions on the Tematica Select List,

As Mobile World Congress gets underway, however, we have another event that should capture investor attention. After presenting what’s called a “skinny budget” today, (which we view as the “opening bid budget”) tomorrow night, President Trump will be speaking to a joint session of Congress. Typically this is referred to as the State of the Union Address, but it’s not called that for a newly elected president. Trump has already shared that he will be talking about health care reform – “We’re going to be speaking very specifically about a very complicated subject…I think we have something that is really going to be excellent.”

As we’ve said before, we’re optimistic and hopeful, but thus far it seems Republicans have yet to find common ground on which to move forward on this. In addition to healthcare reform, investors, including us, will be listening for more details on Trump’s fiscal policies. The issue is speeches such as this tend to be lacking in specifics, and we would be rather surprised to see Trump deviate from that tradition.  Moreover, we’ve already seen the Treasury Secretary push out the timetable for a tax report to late summer, and Trump himself suggested that we are not likely to see his tax reform proposal until after the healthcare reform has been addressed.

As we shared in this morning’s Monday Morning Kickoff, with the S&P 500 trading at 18x expected earnings, it looks like the stock market is out over its ski tips. Two drivers of the market rally over the coming months have been the improving, but not stellar economic data and the hope that President Trump’s policies will jumpstart the economy. We’ve been saying for some time that the soonest we’d likely get any meaningful impact from Trump’s policies would be the back half of 2017. That’s been our perspective, but as we know from time to time, the stock market can get ahead of itself, and we see this as one of those times. The stock market’s move reflects expectations for an accelerating economy – it’s the only way to get the “E” that is earnings growing enough to make the market’s current valuation more palatable.

One of the common mistakes we see with investors is they almost always only focus on the upside to be had, without keeping an eye on the downside risks. If Trump is successful when it comes to the domestic economy, and we’d love nothing more than to see acceleration here, earnings will likely grow materially.

One of the potential risks we see this week is the market being disappointed by the lack of details that Trump will share tomorrow night, which might be read as a push out in timing relative to what the stock market expects. As we said on last week’s Cocktail Investing podcast, resetting expectations is a lot like children that open presents on Christmas morning to find something other than what they expected — it’s far from a harmonious event and more like one that is met with mental daggers, confusion, and second guessing. In short, not a fun time at all.

Again, our thought is better to be safe than sorry given where the market currently sits. Some investors may want to utilize stop losses across positions like Universal Display (OLED), CSX Corp. (CSX), Skyworks Solutions (SWKS), Activision Blizzard (ATVI) and others that have been robust performers thus far in 2017 in order to preserve gains should the stock market get its post-Trump speech jiggy on. More aggressive investors may wish to utilize inverse ETFs, such as ProShares Short S&P500 ETF (SH), ProShares Short Dow30 ETF (DOG), or ProShares Short QQQ (PSQ), while traders implement call options on those inverse ETFs or employ the use of select puts.

 

 

Putting Some Defensive Measures in Place Ahead of Tuesday’s Trump Speech

Putting Some Defensive Measures in Place Ahead of Tuesday’s Trump Speech

If you’ve missed our weekly Monday missive that is the Monday Morning Kickoff, we’d encourage you to pursue it later today as it offers both context and perspective on last week, including much talk about the Fed, and sets the stage for this week.

This week, we’ve got a lot of data coming at us, more corporate earnings that prominently feature our Cash-strapped Consumer and Fattening of the Population investing themes. There are a number of events and conferences as well, and before too long we’ll have some thoughts on this week’s Mobile World Congress, an event that meshes very well with our Connected Society, Disruptive Technology and Cashless Consumption investing themes.

We expect to see a number of announcements ranging from new smartphone models, connected as well as autonomous vehicle developments, voice digital assistant initiatives, drones, and payment systems to name a few. We’ll be watching these with regard to a number of positions on the Tematica Select List, including Universal Display (OLED), Nuance Communications (NUAN), AT&T (T), Dycom Industries (DY), CalAmp (CAMP) and Alphabet (GOOGL) as well as Amazon (AMZN). Already Amazon has announced it will bring its Alexa VDA to Motorola’s smartphones, and we see that as the tip of the proverbial iceberg his week.

As the Mobile World Congress gets underway, however, we have another event that should capture investor attention. After presenting today what’s called a “skinny budget”, (which we view as the “opening bid budget”) tomorrow night President Trump will be speaking to a joint session of Congress. Typically this is referred to as the State of the Union Address, but it’s not called that for a newly elected president. Trump has already shared that he will be talking about health care reform — “We’re going to be speaking very specifically about a very complicated subject…I think we have something that is really going to be excellent.”

As we’ve said before, we’re optimistic and hopeful, but thus far it seems Republicans have yet to find common ground on how to move forward on this. In addition to healthcare reform, investors, including us, will be listening for more details on Trump’s fiscal policies. The issue is speeches such as this tend to be lacking in specifics, and we would be rather surprised to see Trump deviate from that tradition. Moreover, we’ve already seen the Treasury Secretary push out the timetable for a tax report to late summer, and Trump himself suggested that we are not likely to see his tax reform proposal until after the healthcare reform has been addressed.

As we shared in this morning’s Monday Morning Kickoff, with the S&P 500 trading at 18x expected earnings, it looks like the stock market is out over its ski tips. Two drivers of the market rally over the coming months have been:

  • The improving, but not stellar economic data
  • The hope that President Trump’s policies will jumpstart the economy.

We’ve been saying for some time that the soonest we’d likely get any meaningful impact from Trump’s policies would be the back half of 2017. That’s been our perspective, but as we know from time to time, the stock market can get ahead of itself, and we see this as one of those times. The stock market’s move reflects expectations for an accelerating economy – it’s the only way to get the “E” that is earnings growing enough to make the market’s current valuation more palatable.

 

Need to Keep Our Eyes on Both Sides of the Equation

One of the common mistakes we see with investors is they almost always only focus on the upside to be had, without keeping an eye on the downside risks. If Trump is successful when it comes to the domestic economy, and we’d love nothing more than to see acceleration here, earnings will likely grow materially.

One of the potential risks we see this week is the market being disappointed by the lack of details that Trump will share tomorrow night, which might be read as a push out in timing relative to what the stock market expects. As we said on last week’s Cocktail Investing podcast, resetting expectations is a lot like children that open presents on Christmas morning to find something other than what they expected — it’s far from a harmonious event and more like one that is met with mental daggers, confusion, and second guessing. In short, not a fun time at all.

For that reason, we’re going to make some defensive adjustments to the Tematica Select List, which has enjoyed the market rally over the last few months and led to strong moves in our Universal Display (OLED), AMN Healthcare (AMN), Costco Wholesale (COST) shares as well as several others.

 

With an eye toward preserving profits, we are going to introduce the following stop losses:
  • Alphabet (GOOGL) at $800
  • Universal Display at $70
  • AMN Healthcare at $37
  • PowerShares NASDAQ Internet Portfolio ETF (PNQI) at $90

 

Alongside these new stop losses, we’re also going to raise several existing ones:
  • Boost our stop loss on AT&T (T) to $36 from $31
  • Raise our stop loss on International Flavors & Fragrances (IFF) to $115 from $105
  • Boost our stop loss on Costco Wholesale to $170 from $165
  • Increase our stop loss on Disney (DIS) shares to $100 from $87

 

Again, our thought is better to be safe than sorry given where the market currently sits. We’ll continue to review other positions on the Tematica Select List with similar actions where and when it makes sense.

 

Boosting Our Price Target on this Disruptive Technology Company Again

Boosting Our Price Target on this Disruptive Technology Company Again

Last night shares of Disruptive Technology company Universal Display (OLED) popped more than 10% in after-market trading as the company delivered substantially better than expected December quarter results and instituted a new dividend program. Granted the quarterly dividend of $0.03 per share equates to an extremely low dividend yield, but the program, which is expected to include regular quarterly dividend payments, is a signal that Universal sees enough cash generation to invest in the business and return capital to shareholders as the organic light emitting diode market expands.

 

Details Behind Universal Display’s Performance

For the quarter, Universal reported EPS of $0.55 per share, $0.14 ahead of consensus expectations on revenue that rose 20% year over year to $74.6 million, besting expectations of $69 million for the quarter. Breaking down the company’s revenue, licensing fees grew 27% year over year to $43.6 million (58% of revenue), material sales rose 5% to $29.2 million (39%) with the remainder generated by Universal’s contract research business (2%). Simply put, we see licensing business and materials business responding to the rising industry demand for organic light emitting diode displays, a phenomenon of which we are still in the early innings.

As expected, on the earnings call, Universal’s management team trotted out a number of examples of new products and market opportunities that are increasing demand for organic light emitting diode displays, which in turn drive demand for the company’s materials and licensing businesses. We see those examples, which included smartphones from ASUS and Huawei, TVs from Panasonic, LG, automotive lighting applications (tail lights, interior lighting, indicator lights and displays), augmented reality, virtual reality,  as solid reminders that organic light emitting diode display adoption spans far more than just Apple (AAPL) and the next generation iPhone.

If we were to be nit-picky, the only issue to be had with Universal’s earnings report was that management guided 2017 revenue in line with expectations. Coming into last night’s earnings report, consensus revenue for 2017 stood at $242.7 million across just over a handful of analysts and Universal’s guidance put revenue at $230-$250 million. Baked into that company guidance are two $45 million royalty payments from Samsung that land in the second and fourth quarter. In our view that guidance seems conservative, but we also recognize the biggest swing factor in the company’s revenue is not so much new capacity additions, but when that capacity moves past installation and testing, and into active production.

Given expanding capacity from a number of companies including Samsung, LG Display, AUO Optronics, Japan Display, Sharp and China BOE Technology, which is reflected in the order book at capital equipment company Applied Materials (AMAT) and its competitors, there is ample confirmation of expanding capacity over the next few years. Where it gets tricky is predicting the quarterly timing of productive capacity coming on stream. Given our long-term investment horizon, we’re inclined to sit back and be patient as the continued step up in capacity likely means an expanding business at Universal Display and boosting our price target on the shares along the way.

Earlier this week, shares of Applied Materials joined Universal Display shares on the Tematica Select List, and we continue to rate AMAT shares a Buy with a $47 price target.

 

The Stock Market Marches Higher and So Does the Tematica Select List

The Stock Market Marches Higher and So Does the Tematica Select List

The last week has been a barn burner for a number of our positions on the Tematica Select List. We had earnings from AMN Healthcare (AMN) and International Flavors & Fragrances (IFF) that led both positions to move higher, January Retail Sales that were bullish for our Amazon (AMZN) shares and to a lesser extent our Alphabet (GOOGL) shares, and big move in our Universal Display (OLED) shares. Part of the catalyst for that move in Universal Display (OLED) shares was bullish comments from Applied Materials (AMAT) on the rising capacity for organic light emitting diode displays. On the back of that as well as accelerating growth in chip demand, we added Applied Materials shares as a Disruptive Technology play on the Tematica Select List with a $47 price target.

Yesterday’s Flash February PMI reports from Markit Economics point to an improving global economy complete with input prices moving higher. We suspect this will be on the Fed’s mind as we get more data ahead of the March FOMC meeting that is just a few weeks out. Our position is the Fed is likely to wait until firm details of President Trump’s economy stimulus plans and tax overhaul have been announced and digested. Given the likelihood that won’t happen ahead of the March FOMC meeting, we think there is a higher probability the next Fed rate hike will be had at its May meeting. Of course, the coming data will be key and that means pouring over the next iteration of Fed meeting minutes that will be published later today.

Later in the week, we have earnings from Universal Display (OLED). Consensus expectations for Universal’s December quarter results are EPS of $0.42 on $68.6 million in revenue. We expect a bullish outlook to be had when Universal reports its results this Thursday. Our price target on OLED shares sits at $80.

Before we get to some housekeeping items, here’s a quick recap of where our various positions sit on the Tematica Select List. Remember, our thematic style of investing is long-term in nature, which means we are inclined to use share price weakness to scale into Buy rated positions provided the thematic thesis remains intact:

 

Buy rated stocks on the Tematica Select List continue to be:

  • Alphabet (GOOGL) – Asset-Lite Business Models
  • Amazon (AMZN) – Connected Society
  • Applied Materials (AMAT) – Disruptive Technology
  • CalAmp Corp. (CAMP) – Connected Society
  • Disney (DIS) – Content is King
  • Dycom Industries (DY) – Connected Society
  • Facebook (FB) – Connected Society
  • International Flavors & Fragrances (IFF) – Rise & Fall of the Middle Class
  • McCormick & Co, (MKC) – Rise & Fall of the Middle Class
  • Nuance Communications (NUAN) – Disruptive Technology
  • PureFunds ISE Cyber Security ETF (HACK) – Safety & Security
  • Starbucks (SBUX) – Guilty Pleasure
  • United Natural Foods (UNFI) – Foods with Integrity

 

Subscribers should continue to hold shares of: 

  • AMN Healthcare (AMN) – Aging of the Population
  • AT&T (T) – Connected Society
  • Costco Wholesale (COST) – Cash-strapped Consumer
  • PowerShares NASDAQ Internet Portfolio ETF (PNQI – Connected Society

 

Remember, the full list of positions on the Tematica Select List, along with detailed price targets, recommended stop-limit prices and returns are always listed on the Holdings / Performance page you can access by clicking here or on the white and green “Select List Performance” box on the top right of this page.

 

Exciting Updates to Your Tematica Investing Service . . .

Amazing as it might seem, we’ve got less than one week to go until we close the book on February. We suspect you’re likely thinking that means before too long mild temperatures will be on the way, and we’re right there alongside you. Here at Tematica, we’ll be coming up on the one-year anniversary since we opted to self-publish our products. As we said at the time, we wanted more editorial control to provide the kind of service and insight we think our subscribers deserve.

Over the last year, you’ve probably noticed several happenings that build on our Monday Morning Kickoff and premium products, like Tematica Investing. We added weekly Thematic Signals, which is our Tematica take on “ripped from the headlines” but with a thematic perspective. As we see it, Thematic Signals is a constant reminder of our 17 investment themes at work in and around us each and every day. Those signals are posted to our website on nearly a daily basis and then an email is sent out summarizing all of them on Friday afternoons.

Lenore Hawkins
Tematica Research Chief Macro Strategist

A few months ago we brought Lenore Hawkins on as Tematica’s Global Macro Strategist, and if you’re not checking out Elle’s Economy over at TematicaResearch.com on a regular basis, we have to say you’re missing out.

More recently in a move that has Chris Versace’s as happy as a dog getting his belly scratched, we are back podcasting with Lenore chiming in as well with her usual wit and insights. We’ve already had the CEO of US Concrete (USCR) on the program as well as the CEO of mobile advertising disruptor Digital2Go, and we’ve got a number of great guests coming up in the coming weeks including IBM (IBM), InterDigital (IDCC), Skyworks Solutions (SWKS), Boxed, and several cyber security companies. Versace always enjoys these conversations because you never know what useful tidbits a guest might drop. You can find the Cocktail Investing podcast each and every week right here on TematicaResearch.com

 

After all of that, one might think we’d take it easy for a while . . . We’re not.

Rather, we’ve kicked things up even further by sharing our thoughts on a more frequent basis. You’ve probably noticed the “Tematica Investing Posts for XX/XX/2017” that have started to hit your email. Our thinking is the stock market is a quick moving and dynamic animal, not one that should only be addressed once per week. Each day, you’ll get a mid-day recap of what we’ve published in the last 24 hours including our latest thoughts on the economy, key thematic data points, new positions on the Tematica Select List (like yesterday’s Applied Materials (AMAT) addition), and position updates.

The goal is not to overwhelm you, but rather share in real-time digestible thematic insights and action that much like the Hippocratic oath is aimed at helping you be a smarter investor without doing any harm in the process.

We’d love to hear your feedback at customerservice@tematicaresearch.com