Rob Citrone

Rob Citrone’s Discovery Capital Management has filed an amended 13G with the SEC, in which it disclosed that it owns an 8.7% stake in Universal Display Corp. (NASDAQ:OLED), which contains 4.02 million shares. According to a Form 4, the fund sold some 775,000 shares in the last couple of days.

Discovery Capital Management

Discovery Capital Management is a Connecticut-based hedge fund established by Tiger cub Robert Citrone in 1999, which  employs fundamental analysis with a top-down and bottom-up stock picking approach when looking for opportunities in the public equity and fixed income markets across the globe. Robert Citrone, who used to work for the renowned hedge fund manager Julian Robertson, is widely-known as an emerging markets specialist. Unquestionably, his valuable investment expertise  across different asset classes and markets played an important role in the successful track record of his Discovery Capital Management. Reportedly, Robert Citrone’s hedge fund has generated an annualized return of 17% since its inception in 1999 to 2013. The only serious down year for Discovery Capital Management was in 2008, when its flagship fund, Discovery Global Opportunities Fund, lost approximately 33% during the financial crisis of that year. According to its most recent 13F filing, Discovery Capital Management oversees a public equity portfolio with a market value of $8.78 billion as of March 31.

Rob Citrone
Rob Citrone
Discovery Capital Management

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks have returned 123% since then and outperformed the S&P 500 Index by around 66 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

Universal Display Corp. (NASDAQ:OLED) is a leader in the research, development and commercialization of organic light emitting diode, or OLED, technologies and materials. Put it differently, the company produces and markets OLEDs, which are used in displays for mobile phones, digital cameras and other gadgets. OLEDs do not use a backlight to light up the screen and are very popular among the portable devices used outdoors because their high light output makes them easy to read in sunlight, using very little battery power. The shares of Universal Display have grown by over 69% since the beginning of the current year, partly boosted by the company’s long-term patent license and material supply agreement with LG Display (NYSE:LPL) announced at the beginning of the year.

On January 26, Universal Display Corporation and LG Display, which is a leading innovator of display technologies, announced the signing of a new OLED Technology License Agreement and Supplemental Material Purchase Agreement. The license agreement stipulates that Universal Display granted LG Display non-exclusive license rights to manufacture and sell OLED display products. In turn, LG Display is set to pay Universal Display license fees and running royalties on its sales of these licensed products by 2022. It is quite clear that the market has already priced in this agreement, which has unlocked a very stable revenue stream for Universal Display.

Let’s now move on to another potential flourishing revenue stream for Universal Display. Apple Inc. (NASDAQ:AAPL) has launched its watch earlier this year, which is the first Apple device that uses an active-matrix organic light-emitting diode (AMOLED) screen, shifting from the LCD screens used in iPhones and iPods. Therefore, it is believed that Apple will use OLED displays for manufacturing its iPhones and iPads in the upcoming years, given the superiority of the OLED displays over LCDs. Universal Displays, as the leader in the OLEDs market, might eventually benefit quite a lot from Apple’s potential introduction of OLED screens to its iPhones and iPads. From the 700 hedge funds that we track, Eric Chen’s Antipodean Advisors is among the largest shareholders in Universal Display Corp. (NASDAQ:OLED), holding a stake of 509,000 shares, as of the end of March.

Disclosure: None