November 18, 2011 7:10 AM EST

Goldman Sachs is causing waves this morning among short selling circles after initiating coverage on two battleground LED stocks with "Buy" ratings.

The firm initiated both Cree, Inc. (Nasdaq: CREE) and Universal Display Corp. (Nasdaq: PANL) with Buy ratings, calling CREE the "best LED idea" and calling PANL its "best OLED idea".

Overall on the group, Goldman sees adoption of general lighting as a multi-decade opportunity which paves the next phase of growth for the industry.

"We believe we are now on the cusp of the next phase of LED adoption, which will
be driven by general lighting," the analyst said. Lighting is only 2%-3% penetrated today, the firm notes, but has a total addressable market that is more than double that of all other LED end markets combined.

Specifically on Cree, the firm sees the company as a "structural winner." The firm cited the company's superior technology drives better leverage to lighting versus scale-driven, commoditized rivals. Goldman also said margins are underappreciated by the Street. The firm set a $40 price target on CREE, suggesting 36% upside.

Specifically on Universal Display, the firm said as the "new LED," the OLED market is entering its first adoption cycle. They see the company's IP-centric model resulting in a dominant technology advantage and high returns. The firm set a $68 price target on PANL, suggesting 29% upside.

Goldman also picked up coverage on Rubicon Technology (Nasdaq: RBCN) with a Sell rating and $8 price target and Veeco Instruments (Nasdaq: VECO) with a Netural and $28 price target.