A gain of 77.09% in 2019 for shares of Universal Display Corporation (OLED) tells of story of big buy demand for the shares. This buying is very unusual and has been very consistent in 2019, until recently. The stock is likely being unfairly punished by getting caught up in a pullback in technology stocks. A great way to uncover tomorrow's winners is to look for great stocks on sale, and Universal Display could be just the opportunity.
Smart money managers are always looking to bet on the next outlier stocks … the best in class. For Mapsignals, it's not enough to look at technicals and fundamentals alone. The key lies in the demand for shares … the big money.
I'll go into the fundamental picture later, but the true tell on the near-term trajectory of a stock lies in its trading activity. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall. For 2019, Universal Display stock has seen strong demand, but the past few weeks show selling in the shares.
For Mapsignals, when we look for an entry on a leading stock, we oftentimes look for great stocks pulling back unfairly. Just to show you what our big money activity signals look like, have a look at all of the big money (unusual institutional) signals Universal Display stock has made over the past year. Focusing on 2019, you can see a lot of buy signals (green) that line up with a lift in the shares. You also see red bars indicating selling in the shares. What is interesting now is that the recent red bars could indicate that most of the selling is done in the shares. We'd venture to think that the stock is due for a bounce:
Looking at the past couple of weeks, Universal Display stock has logged five unusually high-volume days, indicative of selling in the shares (see chart above). This shows that a lot of supply can punish the shares. It has been happening quite a bit recently. These data points suggest that big money supply for the stock is high.
However, this could present an opportunity. If you are going to make a bet on the direction of the stock, it is prudent to pay attention to how the shares are trading. Based on history, the odds suggest that the stock is poised for gains. The big money is always looking for an opportunity to buy shares on the cheap.
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by big money signals (outsized institutional activity). We are looking for the big money bets because big money moves stocks. By studying these data points, we can make an educated guess as to which stocks institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When we decide on a long candidate, we consider prior leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. Below are a few areas in which Universal Display stock has grabbed our attention year to date (YTD):
- YTD outperformance vs. market: +58.12% vs. SPDR S&P 500 ETF (SPY)
- YTD outperformance vs. technology sector: 47.09% vs. Technology Select Sector SPDR Fund (XLK)
- Recent big money sell signals
Now, we take it a step further and score the best stocks showing big money trading activity. Below you can see the historical times since February 2018 when Universal Display stock made buy signals for Mapsignals. These are the highest-rated signals in our stock universe. You see a lot of green in 2019:
On top of a long-term technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Universal Display's recent year-over-year (YoY) numbers are very strong:
- Q2 2019 YoY revenue growth: +110%
- Q2 2019 YoY net income growth: +301%
Universal Display shares are breaking down with other software stocks. The company is doing well fundamentally, and a pullback represents an opportunity.
We like the long-term story of the stock. The narrative for Universal Display stock and other high-quality semiconductor stocks is one of growth in the years ahead. We are always on the lookout for great companies on a pullback. The best companies in a group tend to outperform over the long run. All of this points to a long-term opportunity for the stock.
The Bottom Line
Universal Display stock is breaking down with selling pressure. Our big money indicator is signaling that we should take notice. Shares could be positioned for more upside. Given the historical growth in share price and healthy fundamentals, this stock could be worth a spot in a growth-oriented portfolio.
Disclosure: The author holds a long position in Universal Display Corporation shares at the time of publication.