Why I Bought 1 Volatile Stock This Week

Before you go, we thought you'd like these...
Before you go close icon

Last Tuesday, Canaccord Genuity slashed price targets on Universal Display (NAS: PANL) . Shares plunged as much as 13% on the analyst action; Canaccord said that the new OLED contract with Samsung was less attractive than the old one, and Universal doesn't have any "near-term catalysts" in the pipeline.

Wednesday morning, I took action on the news. I've been waiting for a buy-in opportunity for a long time, and it was time to take the plunge. So far, I'm up 14% as investors are forgetting about this sensationalist research note. And that's just the beginning of a very long financial relationship in my eyes.

That's the power of keeping a watchlist of stocks you'd love to own when the price is right. When the opportunity arises, you'll be ready to buy, sell, or take whatever action you're planning. I'm pretty sure that Canaccord's conclusions are wrong, and very happy to take advantage of this temporary glitch in the market matrix.

My strategy will work even better for you
For me, the situation is complicated by our Foolish disclosure rules. I'm prone to missing the best investment windows on stocks I follow very closely, because I'm not allowed to trade stocks I write about within certain windows. We don't pump and dump here at the Fool.

For example, Universal Display looked super-cheap last August, heading into the second-quarter earnings report. But I couldn't take advantage because I was too busy telling you, dear reader, about the fantastic opportunity that was on the table. And when the report finally dropped, shares jumped more than 15% in a flash and the magic moment was gone.

This stock is as volatile as a bottle of raw nitroglycerin, and for good reason: Universal Display is only just emerging from years of heavy losses, and the OLED market is both exciting and poorly understood. The stock chart often looks like a top-of-the-line roller coaster with heart-stopping climbs and terrifying drops. But if you know the company well, you're probably just waiting for the next huge drop. That's why Universal Display is ideal fodder for your watchlist.

Don't stop with one stock!
For much the same reasons, you should stick these companies on your watchlist as well:

CompanyBeta52-Week Price Swing (bottom to top)CAPS Rating (out of 5)
Universal Display1.28180%***
3-D Systems (NYS: DDD) 1.78130%****
Sonus Networks (NAS: SONS) 1.78111%****
Silicon Motion Technology (NAS: SIMO) 2.08441%****

Data sources: Google Finance and Motley Fool CAPS.

I already own Sonus because I took advantage when the voice and data networking specialist became cheap in a moment of temporary weakness. The stock is even less expensive today as the long-term thesis on massive broadband installations is playing out rather slowly.

3-D Systems and Silicon Motion, on the other hand, are firmly on my forward-looking watchlist. 3-D printing is a revolution just waiting to happen but I'm waiting for a more attractive entry point. Silicon Motion has nearly doubled over the last year, and I just might miss the boat on this digital media play. Well, at least I'm in that market via Universal Display now -- and you never know when Silicon Motion might plunge again. That's kind of the point of watchlist investing.

Add these volatile stocks to your Foolish watchlist, and keep a finger on your trading trigger. Our Rule Breakers newsletter service is another great place to find explosive watchlist fodder, often trading at sky-high valuations but prone to drastic dips and jumps. Start with this special report on the next rule-breaking multibagger, hot off the presses.

At the time this article was published Fool contributorAnders Bylundowns shares of Sonus Networks and Universal Display but holds no other position in any of the companies mentioned. The Motley Fool owns shares of 3-D Systems.Motley Fool newsletter serviceshave recommended buying shares of Universal Display. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. We have adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners