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  1. Home
  2. / Investing
  3. / Technology

Growth Seeker: Universal Display Lights Up Portfolio's Performance

GS holding OLED popped an additional 12% -- but it's not the only position soaring this year.
By CHRIS VERSACE
Feb 26, 2017 | 10:00 AM EST
Stocks quotes in this article: OLED, AMN, DY, T, VZ

This commentary is an excerpt from the Growth Seeker Weekly Roundup. Click here to learn more about this dynamic portfolio and market information service.

Once again, all three major market indices ended the week higher. Of particular note, the Dow Jones Industrial Average has now booked 11 consecutive up days, closing at all-time highs in the process. Year to date, all the major market indices are between 5.0% and 8.5% higher. All of this has the S&P 500's valuation clocking in at around 18x earnings, well above its historical average and the highest level since 2004.

We're mindful of the market's valuation as well as the continued impact of the Trump trade that has continued to boost optimism even though we've yet to get full details on a number of his initiatives. With earnings season winding down, there is a crossroads of improving economic numbers, and not so good data such as rising auto-loan delinquencies, especially on subprime auto loans, higher gas prices that are likely to crimp consumer wallets, and the first baby boomers entering their 70s. The question we keep pondering is what could be the near-term catalyst that leads the market lower? We'll examine this some more over the weekend.

There were no new additions to the Growth Seeker Portfolio this week, but we had some substantial gains in our Universal Display (OLED) position. The shares popped 12% following better-than-expected quarterly earnings and an upbeat outlook fueled by growing adoption of organic light emitting diode display across a number of industries. The company's quarterly report led us to once again boost our price target, which now sits at $85, offering additional potential upside even though year to date the shares have gained an incredible 44%.

Other big performers for the week included AMN Healthcare (AMN) , which is a direct beneficiary of the aging population we talked about above. Those shared climbed 3% this week, bringing the year to date return to nearly 9%. As we get ready to close the books on February, we've got three other positions that are up well in double-digits year to date and several others that have increased in the upper single-digits vs. 5.5% for the S&P 500 and 2.6% for the Russell 2000.

One of the key topics in the coming weeks will be the Federal Reserve as we get more data to fill in the economic picture of January and February ahead of the March FOMC meeting. Coming into this week, expectations were rather low for a March rate hike. Between last week's Capitol Hill testimony by Fed Chair Janet Yellen, this week's latest iteration of the FOMC minutes for its late January meeting and next week's end of the month, start of the new month data deluge, we thought it best to rehash recent Fed-related events in chronological order to put some perspective around things.

The Fed's last meeting was held in late January and this week we received the minutes of that meeting. Coming out of that report much of the media hung their hats on the following statement: "Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations."

However, we found this one comment in the minutes far more telling: "Participants discussed whether their current assessments of economic conditions and the medium-term outlook warranted altering their earlier views of the appropriate path for the target range for the federal funds rate. Participants generally characterized their economic forecasts and their judgments about monetary policy as little changed since the December meeting."

Again, we're looking at this in chronological order, which means we turn to Yellen's testimony from last week. In that briefing, she confirmed the notion the Fed would seek to boost rates up to three times in 2017, but also cautioned the central bank needs to see the economic stimulus and tax overhaul plans that are pending from President Trump to determine the potential impact on the economy and inflationary forces.

This week, we received some favorable economic data in the February Flash PMIs published by Markit Economics, and a solid existing home sales figure for January. Looking into the existing home sale report, while the figure was the strongest since February 2007, our key takeaway is high prices and limited inventory continue to compress the affordability factor for potential buyers, thereby capping the market. Across the Flash PMIs, there was solid economic growth, but also rising input prices -- something the Fed is bound to be watching.

Speaking on the timing of his tax plan late this week, President Trump stated the tax reform plan was "well finalized," but will only be released after a successful repeal of the Affordable Care Act. Then yesterday, Treasury Secretary Steven Mnuchin said he expects a plan to pass through Congress before the August recess. To us, this means in all likelihood the Fed will not have time to digest and assess the plan ahead of the March meeting, which puts the next rate hike potentially in May. Our view on this was backed by the quick selloff in the PowerShares DB US Dollar Index Bullish ETF (UUP:NYSE) soon after the Fed minutes were published.

Turning to next week, we've got the usual end of month and start of the new month data to contend with. That means the January durable orders and personal income & spending report as well as the final Markit PMI data, ISM reports on both the manufacturing and services economy and, of course, a few looks at February job creation. Given recent snapshots of the economy these reports will no doubt be put under the microscope, especially by those that think the Fed might move in March. Again, we see a low probability of that happening.

On the earnings front, we have Dycom Industries (DY) on deck. On a higher level, we expect Dycom to shed some insight in 5G deployments across it wireless customer base that includes AT&T (T) and Verizon (VZ) . Also this week is Mobile World Congress, which tends to be a showcase for the mobile industry and could have a number of product announcements. We'll be watching for ones that could benefit several of our other positions.

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At the time of publication, Versace had no positions in any securities mentioned.

TAGS: Investing | U.S. Equity | Financial Services | Technology | Markets | Politics | Stocks

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