How Corning Is Evolving for the Future
Jul 5th 2012 2:54PM
Updated Jul 5th 2012 3:26PM
Corning (NYS: GLW) stock has been getting crushed. Its price has lagged the S&P 500 by nearly 50% since hitting a high above $23 in early 2011. But just because Corning would have been a bad investment back then doesn't mean you shouldn't consider investing now. In fact, I would argue that now is as good a time as ever to invest in this timeless company.
Old dogs can learn new tricks
While your mother might have known Corning for its Pyrex consumer cookware, Corning has evolved its business numerous times since. It invented fiber optics in 1970 and shifted its primary focus toward producing the backbone of the Internet boom. When the Internet bubble burst just after the turn of the century, Corning's fiber optics business took a backseat and the company was forced to shift its primary focus once again, this time to producing LCD display glass.
In the past decade, Corning has dominated the LCD display glass market, earning massive margins in its display technologies segment. In fact, that division accounted for more than 90% of profits in 2011. But as you might have noticed if you've walked through a TV retailer like Best Buy or hhgregg recently, LCD TVs are significantly cheaper today than they were a couple of years ago. This price decrease comes from a recent drop in demand, and it's unclear how soon, if ever, that demand might rebound.
With the declining LCD TV market, the company has been forced to lower earnings projections. At a current price-to-earnings ratio of eight, the market isn't particularly enthusiastic about Corning's prospects of returning to its prerecession LCD dominance. And rightfully so. Corning will probably never be as profitable an LCD display glass company as it was in the past. But the future looks bright for Corning for other reasons.
Other sources of revenue
Besides LCD display glass, Corning makes a lot of cool stuff, most notably Gorilla Glass, a highly durable, scratch-resistant display glass that's rapidly being adopted by makers of smartphones and tablets. Sony (NYS: SNE) has even rolled out a line of TVs with displays made entirely of Gorilla Glass. Another intriguing product that's even newer is Willow Glass, paper-thin sheets that can bend a full 180 degrees while still remaining scratch-resistant. In a couple of years, I think we could see some smartphones entirely encased in Willow Glass. I find these technologies amazing, and I think we've barely scratched the surface of potential uses.
Other promising channels of revenue for Corning include its telecommunications segment, which makes fiber optic cable, as well as its environmental technologies segment, which makes key components in emissions control systems. While short-term profits from LCD TVs are falling, precipitous growth from its other products, particularly Gorilla Glass, should help Corning rebound in the near future.
In the more distant future, I like Corning's prospects even more. Although I doubt we'll see the glass utopia that Corning depicts in this clip on YouTube, full of touchscreen calendars on wall-sized windows, it seems very likely that touchscreens will play a bigger and bigger role in our lives. It might not be Gorilla Glass, but I would be willing to bet on Corning's $700 million research and development department to develop innovative types of glass to meet future demand. That's the same research and development department that developed the casings for the first lightbulbs and invented fiber optics.
Priced for success
Even if you don't buy the thesis that in the long term Corning will make bank on touchscreen display glass, its recent price plunge makes it at least look pretty safe. It's currently trading below tangible book value, pays a 2.3% dividend, and has $5.5 billion in cash with minimal debt. Right now, Corning is priced for essentially no growth despite some tremendous potential upside, making it a compelling investment at its current price.
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At the time this article was published Sam Stevens has no position in any of the companies mentioned in this article. The Motley Fool owns shares of Best Buy and Corning. The Motley Fool has sold shares of Sony short. Motley Fool newsletter services have recommended buying shares of Corning and hhgregg. The Motley Fool has a disclosure policy.
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