As we shut the book on 2016, we are taking stock of our positions in the Growth Seeker portfolio with an eye to what's ahead for 2017 and beyond. Ever since the presidential election, the domestic stock market has been on fire, which means we need to look past the current market move and any pullback that is likely to happen as 2017 gets under way.
Given our thematic way of looking at the world, instead of the herd-centric sector perspective, we see a number of tailwinds powering on in 2017. For example, we don't see any slowdown in the shift toward digital commerce, nor do we see it abating for the growing consumer preference toward streaming media. Both of those, as well as other drivers, will continue to strain already at-capacity mobile and broadband networks.
That's certainly an enticing opportunity for investors, but as we move into 2017 we are also at a key tipping point for organic light emitting diode (OLED) display technologies. In the past, we've seen the impact of similar disruptive technologies, when TV moved from bulky and hot cathode ray tube displays to much sleeker liquid crystal display (LCD) screens. We saw it again when light emitting diodes became the backlight source of choice for LCD TVs, collapsing their thickness and heat emission in the process. We've already started to see OLED technology replace LCD displays in the smartphone market, helping improve thickness and battery life in Samsung's smartphone models.
In 2017, more smartphone companies, including those based in China, as well as Apple (AAPL) , are poised to replace existing smartphone displays with OLED-based ones. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
A recent Wall Street Journal article said, "Analysts widely expect the next iPhone to adopt a technology called organic light-emitting diode, at least for high-end versions. OLED displays, which are thinner, more flexible and give better contrast, will eventually replace the current liquid-crystal displays, or LCDs."
Outside of Apple speculation, we continue to hear more reports of increasing industry capacity to meet rising demand from smartphone, TV, wearables and other markets that are set to adopt OLED technology. Sony (SNE) recently announced it will bring its first OLED-based TV to market, debuting the product at 2017 CES in January. If history holds, it means a slew of competitive responses from Samsung, LG and other mainstays in the TV market.
To date, industry manufacturing capacity for organic light-emitting diodes has been constrained, but existing players such as Samsung and LG as well as newer entrants are adding organic light-emitting diode capacity to meet demand from the smartphone market as well as new applications that include OLED TVs, wearables, virtual reality and augmented reality, and for emerging opportunities including automotive OLED display and lighting.
What this means is OLED technology is poised to hit a tipping point during 2017.
Signposts to watch include orders for semiconductor capital equipment that is used in manufacturing OLED displays. Simply put, the industry has enough manufacturing capacity in place to meet expected demand. Breaking down new order flow at companies like Applied Materials (AMAT) , Veeco Instruments (VECO) and Aixtron SE (AIXG) reveals these orders have already begun to mount -- more evidence that 2017 is poised to the OLED tipping point.
From an investor perspective, those three capital equipment companies are not pure plays on the OLED tipping point, just beneficiaries. Much as Cree (CREE) was the pure play on the light-emitting diode (LED) wave of disruptive technology, Universal Display (OLED) is the OLED pure play. Much as Qualcomm (QCOM) has a push-pull between its chip and higher-margin licensing business, so too does Universal Display with its OLED chemicals and licensing business. Moreover, Universal already counts the big players in the OLED industry -- Samsung and LG -- as customers. As their capacity and that of others ramps, so too should demand for Universal's chemical business.
We see several catalysts coming in the first half of 2017, including the aforementioned 2017 CES as well soon-to-follow events such as Mobile World Congress 2017 and CeBIT 2017, which should propel OLED shares higher. As products announced at those events launch, we are apt to see the Wall Street following grow for OLED shares, especially once we learn Apple's plans for its next iPhone. Keep in mind the Apple halo cuts both ways, which means OLED shares could be volatile, but we would use that to build the position throughout 2017 given that 2018 looks to be a better volume year.
