We recently compiled a list of the 7 Most Profitable Mid-Cap Stocks To Invest In. In this article, we are going to take a look at where Universal Display Corporation (NASDAQ:OLED) stands against the other profitable mid-cap stocks.
Inflation Data Raises Concerns
On October 10, the market faced a decline as economic data indicated persistent inflation, as reported by CNBC. The S&P 500 fell by 0.21%, closing at 5,780.05, while the Dow Jones Industrial Average decreased by 57.88 points, or 0.14%, to finish at 42,454.12. The Nasdaq Composite also dipped slightly, ending down 0.05% at 18,282.05.
The market reaction was largely influenced by the Consumer Price Index (CPI) report for September, which showed a monthly increase of 0.2%. This brought the annual inflation rate to 2.4%, slightly above analysts’ expectations of a 0.1% monthly gain and a year-over-year rate of 2.3%. Although this annual figure is the lowest since February 2021, some underlying data suggested stronger inflationary pressures than anticipated.
Luke O’Neill, a portfolio manager at CooksonPeirce, noted that the CPI report was as expected in most respects but highlighted that certain data points were “a little bit hotter than anyone would prefer.” He pointed out that investors were selling off small- and mid-cap stocks that are more sensitive to interest rates.
In response to the CPI report, Atlanta Fed President Raphael Bostic stated he was open to pausing interest rate cuts during the upcoming November meeting. He expressed that the current market fluctuations might warrant a more cautious approach rather than aggressive cuts. However, according to CME Group’s FedWatch Tool, fed funds futures trading data suggests an approximately 85% chance of a quarter-percentage-point cut.
Recent minutes from the Federal Reserve’s last meeting revealed some disagreement among officials regarding the size of September’s rate cut. While the majority supported the cut, some favored a smaller move.
On October 11, Northwestern Mutuals’ Brent Schutte appeared on CNBC’s “Power Lunch” to discuss the CPI report and the market reaction.
Brent Schutte, Chief Investment Officer at Northwestern Mutual, expressed concerns about a potential wage-price spiral, noting that significant wage increases at companies like Amazon and Walmart could contribute to ongoing inflation. He highlighted the Federal Reserve’s challenge in managing this situation, as they often react too late to labor market changes. Schutte pointed out that even with recent rate cuts, inflation remains a concern, particularly with the median CPI rising. He believes the Fed’s path forward will be more complex than investors anticipate, given the persistent inflationary pressures in the economy.
Schutte also expressed concern about the valuations of large-cap stocks, suggesting that the market is in a late-cycle phase. He noted that the economy is currently supported by a narrow segment, particularly manufacturing and lower-income consumers affected by rising interest rates. Schutte believes that small and mid-cap stocks could provide greater value for investors looking for returns over the next 3-5 years, as they are priced for a recession.
Methodology
To compile our list of the 7 most profitable mid-cap stocks to invest in, we used stock screeners from Finviz and Yahoo Finance. First, we defined mid-cap stocks as those with a market capitalization between $2 billion and $10 billion. Next, we focused on profitability by screening for stocks that had a 5-year EPS growth rate of over 10%. We sorted our results based on market capitalization and picked the top 20 stocks.
From this initial list of 20 profitable mid-cap stocks, we further narrowed our choices to stocks that had positive trailing twelve-month (TTM) net income and stocks that have grown their net income positively over the past 5 years. To ensure the reliability of our findings, we consulted reputable sources such as SeekingAlpha, which provided insights into the net income compound annual growth rate (CAGR) over the past five years, and YCharts, which offered information on TTM net income.
Finally, from this list of mid-cap stocks that met our criteria, we focused on the top 7 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 7 most profitable mid-cap stocks to invest in are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician in a lab coat carefully working with OLED displays and components.
Universal Display Corporation (NASDAQ:OLED)
TTM Net Income: $222.68 Million
5-Year Net Income CAGR: 13.74%
Market Capitalization: $9.66 Billion
Number of Hedge Fund Holders: 27
Universal Display Corporation (NASDAQ:OLED) is a leading company in the development and commercialization of organic light-emitting diode (OLED) technologies and materials. OLED technology is essential for creating energy-efficient displays and solid-state lighting. The company’s proprietary UniversalPHOLED technology and materials enable manufacturers to produce high-quality OLEDs used in a wide range of products, including smartphones, TVs, and smartwatches. The company partners with major consumer electronics brands like Samsung and LG, helping to drive innovation in display and lighting technologies.
The company is strategically advancing its position in the OLED market by capitalizing on the growing adoption of OLED technology across various consumer devices. The company reported a significant uptick in the OLED IT market, with major original equipment manufacturers (OEMs) like Apple and Microsoft launching their first OLED tablets. This trend is expected to drive OLED tablet panel shipments to triple year-over-year, reaching 14.8 million units in 2024. Additionally, Universal Display Corporation (NASDAQ:OLED) is focused on enhancing its phosphorescent materials portfolio, with ongoing development of blue emissive materials that promise higher efficiency and performance for OLED applications.
The company’s recent innovations, such as the organic vapor jet printed (OVJP) technology, highlight its commitment to cost-effective manufacturing of high-resolution OLED panels. As demand for energy-efficient solutions continues to rise, Universal Display Corporation’s (NASDAQ:OLED) advancements in OLED technology position it well for sustained growth in the rapidly expanding market.
In the second quarter of 2024, Universal Display Corporation (NASDAQ:OLED) reported revenue of $159 million, an 8% increase year-over-year. Material sales contributed significantly to this growth, reaching $95.4 million compared to $77.1 million in Q2 2023, driven by strong demand for emitter materials. The company’s net income also rose to $52.3 million, or $1.10 per diluted share, up from $49.7 million, or $1.04 per diluted share, in Q2 2023. The company ended the quarter with approximately $879 million in cash and investments, showcasing its strong financial position.
In the Q2 2024 earnings call, management shared that the company’s Board of Directors declared a quarterly dividend of $0.40. This decision reflects the company’s ongoing commitment to returning capital to shareholders while maintaining positive cash flow generation. Overall, these results highlight Universal Display Corporation’s (NASDAQ:OLED) solid performance and its strategic focus on meeting growing market demands in the OLED industry.
As of the second quarter of 2024, Universal Display Corporation (NASDAQ:OLED) was held by 27 hedge funds, according to Insider Monkey’s database. OLED ranks among the top 5 on our list of the 7 most profitable mid-cap stocks to invest in.
Universal Display Corporation (NASDAQ:OLED) has achieved impressive growth over the last 5 years, with its revenue increasing at an average rate of 12% each year. Meanwhile, the company’s net income has also risen, growing at an average rate of 13.74% during the same period.
TimesSquare Capital Management stated the following regarding Universal Display Corporation (NASDAQ:OLED) in its fourth quarter 2023 investor letter:
“New to the portfolio this quarter is Universal Display Corporation (NASDAQ:OLED), a developer of organic light emitting diode technologies for use in display and solid-state lighting applications. The company stands to benefit from a recovery in the end-markets it serves including smartphones, televisions, notebooks, and tablets.”
Overall OLED ranks 5th on our list of the most profitable mid-cap stocks to invest in. While we acknowledge the potential of OLED as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than OLED but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
