Why Corning Is Right for Your IRA
Apr 4th 2012 12:42PM
Updated Apr 4th 2012 1:22PM
This article is part of our Right for Your IRA series, in which Foolish writers each pick a stock or ETF that could be a great fit in a tax-advantaged retirement account.
As the April 15 deadline for filing 2011 taxes draws near, so does the deadline for making tax-deductible contributions to your IRA for that year. The circumstances and tax implications vary from case to case, but I can tell you that the IRA deductions work in some cases. This year, my accountant encouraged me to cut my total taxes by nearly 20% just by boosting the traditional IRA contributions for me and my wife.
That guy is worth every penny of the fees we're charged. And I love the tax-erasing magic of my IRA.
But how, exactly, should you invest those fresh contributions once you've made the money transfer? Ideally, you want to set it and forget it for years or even decades. Many investors don't manage their retirement accounts as actively as they trade their taxable accounts.
For a stock with a brilliant combination of deep value, proven endurance, and even a decent dividend payout, I'd like to suggest that you take a closer look at Corning (NYS: GLW) .
The short story
The maker of glass and ceramics for myriad uses embodies many of our dearest Foolish values:
The company sports a 160-year history, resting on a rock-steady balance sheet today with twice as much cash as debt. This company is going to be there for the long haul.
We love undervalued stocks tied to high-quality businesses. Mr. Market is treating Corning like a red-headed stepchild, valuing the stock as if the business would never grow again.
That would be fine if Corning were stuck in a dead-end commodity industry like industrial materials, but the company has moved far beyond Pyrex cups and fiberglass insulation. The current catalog includes such cutting-edge innovations as Gorilla Glass for today's mobile computing devices and the high-quality fiber-optic cables that keep the Internet running. There's plenty of fresh innovation going on at Corning.
The dividend currently sits at 2.1%, but it's safe and very likely to grow in the future. Corning uses less than 20% of its earnings to cover dividend payments.
Where's the innovation?
The most attractive cutting-edge products in Corning's arsenal today put the company squarely in the trillion-dollar revolution of mobile computing.
You may have heard Gorilla Glass mentioned as the screen covering of choice for smartphones and tablets from Samsung, and the Apple (NAS: AAPL) iPhone and iPad sport either the Gorilla or its main competitor, Dragontrail, from Japanese rival Asahi Glass. Apple isn't spilling the beans and independent testers can't tell the difference, but the market is big enough for several very successful suppliers.
Corning has also developed a new type of glass specifically for handling the high temperatures used in a low-cost type of OLED manufacturing. Processes that would melt most plastics or warp Gorilla Glass panels leave the new Lotus Glass untouched and ready for your next smartphone.
This is an important step toward bigger and cheaper OLED panels, and Corning has formed a joint venture with Samsung to drive it forward. That makes Corning an indirect play on the OLED explosion right next to the more obvious choice, Universal Display (NAS: PANL) . The OLED technologist runs a higher-octane growth business but can't match Corning for diversity or longevity. To each their own.
The Foolish takeaway
To recap, Corning gives you the strength of a tremendously mature company but the growth opportunity of a high-tech innovator. And today, the shares are priced as if innovation were dead.
That's clearly not the case. Lock in the current discount with a timely buy in your IRA portfolio, then sit back and watch as the valuation starts to match the opportunity. Remember Benjamin Graham's motto about short-term popularity contests and long-term weighing machines. And along the way, the dividend policy should become more generous as well.
Among other things, Corning is a hidden winner in the iPad, iPhone, and Android revolution. A handful of stocks in that position trade Corning's stability for perhaps even greater growth. Learn all about it in a special report, free for the taking but only for a limited time. Get your copy today!
See what else our Foolish writers would add to an IRA; click back to the series intro for links to the entire series.
At the time this article was published Fool contributor Anders Bylund owns shares in Universal Display but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Apple and Corning. Motley Fool newsletter services have recommended buying shares of Universal Display, Corning, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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