Universal Display: A bright stock

Organic light-emitting diode (OLED) screens are showing up everywhere, from midrange smartphones to top-shelf TV sets.

OLED researcher and materials reseller Universal Display (Nasdaq: OLED) is a high-octane growth stock, having doubled its sales in five years.

In its last quarter, revenue rose 12% year over year, with management noting that it’s “broadening our core competencies, bolstering our worldwide footprint and expanding our global team.”

Universal Display is also a highly efficient cash machine, pocketing $170 million of free cash flow over the last four quarters based on top-line sales of $570 million.

That works out to a cash-based profit margin of 29.8%, topping the 27.4% margin for one of Universal Display’s most important customers: iPhone maker Apple.

Meanwhile, its balance sheet is clean, recently sporting $727 million in cash and available equivalents, with no long-term debt.

The company is committed to returning excess cash to shareholders, and its dividend yield was recently 1.0%.

If you invest in Universal Display, you’re getting a relatively small company with massive growth opportunities.

Oh, and the stock was recently down 50% from its 52-week high, as nervous investors backed away from seemingly risky growth stocks.

In other words, Universal Display is trading at fire sale prices, when the underlying business seems very sound.

What’s not to love?

Ask the Fool

Q. Is it good to move money into bonds when stocks fall, and vice versa? – L.T., Warsaw, Indiana

A. Not necessarily. Instead, you might just figure out what portion of your assets you want to invest in bonds and stick with that until you have a reason to change your asset allocation, such as if five or more years have passed since you set it up, and you’re older now.

Younger folks might keep all or most of their assets in stocks if they have several decades of investing ahead of them. Those in or nearing retirement might move a larger portion of assets into bonds.

One rule of thumb suggests subtracting your age from the number 110 to arrive at a good allocation for stocks.

So if you’re 40, you’d park 70% of your assets in stocks. If you can tolerate more risk, it’s fair to subtract from 120, instead, for a higher stock allocation. Remember that over long periods, stocks have generally outperformed bonds.

Q. What does the insurance term “float” refer to? – S.N., Bellevue

A. Warren Buffett, CEO of the insurance giant Berkshire Hathaway, has referred to float as “other people’s money” – “money we hold but don’t own.”

When you – and other buyers of insurance – pay your insurance company your premiums every year, the insurer collects the money, which will help cover claims from customers.

The money is collected up front, but claims are paid out throughout the year.

Until that money is needed, the insurance company gets to invest it in stocks, bonds and the like – and gets to keep any profits from such investments.

My Dumbest Investment

My dumbest investment move has been trading too frequently in certain stocks.

For example, I rode Tesla until its 5-for-1 stock split in 2020, selling at around $480 per share.

I then bought shares again at $550. That’s a gain of $70 per share that I missed out on.

So now I’ll keep those shares no matter what.

After that Tesla education, I went back to school with another stock: I bought and sold it for gains of between $20 and $30 per share a few times.

Then the other day, I sold it for a $40 gain.

And again, it’s gone up even more. So I bought it back and I swear I’ll not sell it again.

I hope I’ve learned my lesson this time, but I suspect I’ll need another reminder or two. – M.J.K., online

The Fool responds: Maybe you can avoid making this mistake again: Next time, before you sell, ask yourself what you think the company’s long-term growth potential is.

If you can see it continuing to grow over many years, consider hanging on, so you have the chance to enjoy much bigger long-term gains.

Selling before you’ve owned a stock for more than a year will also subject you to the short-term capital gains tax rate, which is the same as your ordinary income tax rate – and very likely higher than most people’s long-term capital gains tax rate of 15%.