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There's a stock in the market that just seems too good to be true.

Track record? Try 160 years.

Growth opportunities? How about a chance to profit off the megatrends in smartphones and tablets, the solar industry, and China? Seriously.

Dividends? Check.

A cheap price? At half of its 52-week high, it's trading for a P/E ratio of less than six!

Are you excited? So am I. Keep reading and I'll share my research on the stock as well as a bonus report.

An underestimated innovator
If you invested through the dot-com frothiness, you may remember this company. But your remembrances would be almost as outdated as the work the company did with Thomas Edison on the lightbulb.

Corning (NYSE: GLW  ) is a boring-sounding specialty glassmaker that is involved on the cutting edge of technology. A decade ago, the market went gaga for its optical fiber. Providing the backbone for the Internet is a sexy headline during an Internet bubble. In two years, Corning's stock price shot up from the single digits to over $100 a share.

Things have changed. As of Friday's close, Corning stock traded for $12.36. It still runs its optical fiber business, but its cash cow is the glass it provides for LCD panels for televisions. Its growth prospects lie in a few key areas:

  • The Gorilla glass that, according to industry sources, acts as the touchscreens in Apple's (Nasdaq: AAPL  ) iPhones and iPads.
  • Glass technology that General Electric (NYSE: GE  ) showed increases the efficiency of solar panels.
  • The expansion of its LCD business in China.

Yet gone are the high expectations and 180 earnings multiples. What we have is an underestimated business with enhanced pricing power and prospects.

What the market thinks
The market doesn't beat down a stock without reason. Actually, it does. Often. But let's give it the benefit of the doubt and see what the fears are for Corning's future.

Corning's glass can be found all over the place, from the applications we've already talked about to pollution control systems in cars to lab equipment to just about anything its customers want to pay it good money for. It specializes in solving difficult problems and is darn good at it.

However, when you look at Corning's financials by segment, it's clear that it is highly reliant on its LCD business. Once you factor in its non-wholly owned businesses, including its 50% stake in Samsung Corning Precision Materials, the LCD division makes up over half of sales and almost all the profit.

Why does the market care? Because it fears that the wave Corning's been riding is about to hit shore. LCD sales have shot up as folks have been upgrading to flat-screen and/or high-definition TVs. That boost won't last forever. Add in competitive threats from technologies like OLEDs, a tenuous economy, and pricing pressure from Corning's customers, and we can paint a stark picture of falling volumes and falling margins. The market certainly has.

Why I'm bullish
Let's hit volume concerns and then pricing. Ignoring short-term turbulence, the LCD market is still expected to grow over the coming years. Just at a lower rate. Industry watcher IHS iSuppli projects LCD shipments will increase from just under 650 million units in 2010 to closer to a billion in 2014.

Any projections deserve a grain of salt, but the thing to note is that, despite what you'd guess from Corning's stock price, LCD volumes may actually go up in the medium term. That said, Corning itself realizes the LCD industry, if not fully mature, is at least rapidly approaching maturity. It believes it can remain "a very profitable business" even as the industry matures and even as it methodically lowers its prices to its customers.

Remember that Corning has been able to keep up its pricing power and makes, as one analyst put it, "a very envious amount of money." A decade ago, Corning's glass made up less than 10% of the cost of a large television. Now it's over 20%.

It's always important to see who has the pricing power in a value chain. In retail, Wal-Mart (NYSE: WMT  ) has it over its suppliers. Altria (NYSE: MO  ) and Philip Morris (NYSE: PM  ) have it over tobacco farmers. Yet, Corning's glass is so good that it has been able to keep up its margins despite falling television prices and panel makers who would love to lower their input costs.

In addition, as screens get thinner, Corning can do more with less glass. As one of its higher-ups put it, "We melt our glass in pounds and we sell it in square feet." 

Bottom line, Corning's LCD business is stronger than the market believes it is.

Why I'm extra bullish
Then we get to the sexy parts of the business. While Corning keeps on keeping on in television and computer screens, it is investing in the future.

Corning has lasted 160 years because of its innovation culture. That's how you bridge the distance from Thomas Edison to Steve Jobs. It consistently and routinely spends on R&D, committing around 10% of its sales. On top of that, it is committing goodly amounts of capital expenditures to Gorilla glass, the scratch-resistant glass that allows you to occasionally drop your smartphone and live to tell the tale.

Corning thinks it could grow its output of Gorilla glass for smartphones by three to four times by 2014. On the tablet front, it's six times. And then there's the potential of LCD manufacturers using Gorilla glass to both strengthen their TV screens and add touchscreen features.

All this is why Corning believes it can grow its top line from $6.6 billion in 2010 to $10 billion in 2014. And why Corning believes it can crank out $7 billion in free cash flow by then.

This is a growth story I can get behind. Especially when the market is pricing Corning as a death story. I take additional solace that Motley Fool co-founder David Gardner has it as a "Best Buy Now" in his Stock Advisor newsletter.

As a bonus, there's the hidden opportunity for a massive dividend. Corning currently pays a decent 1.6% dividend, but given its net cash position of $3 billion to $4 billion and its future free cash flow potential, its CFO has hinted thusly: "What are we going to do with all that cash? I can tell you that the board has requested to discuss potential cash distribution options soon." Nice. [Editor's note: Two days after this article was published, Corning announced a 50% dividend raise and a $1.5 billion stock buyback. They moved quickly!]

Corning is well on its way to becoming a dividend monster. For the name of a stock that already qualifies, check out our most popular free report. It highlights "one dividend stock for the rest of your life." Click here to read all about it.

 Anand Chokkavelu owns shares of Apple, Altria, and Philip Morris International. You can follow his thoughts on Twitter. The Motley Fool owns shares of Wal-Mart Stores, Apple, Altria Group, and Philip Morris International. Motley Fool newsletter services have recommended buying shares of Corning, Wal-Mart Stores, Apple, and Philip Morris International. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (19) | Recommend This Article (202)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 03, 2011, at 6:36 PM, Maui808Gal wrote:

    I did my DD on this one a year or so ago and saw this coming and was in before the "offical" recomendation. I believe,. I believe. I believe!

  • Report this Comment On October 03, 2011, at 9:21 PM, mikecart1 wrote:

    1 Stock to Buy In October: BAC

    Cheers! :D

  • Report this Comment On October 03, 2011, at 9:34 PM, TheDumbMoney wrote:

    I am liking GLW, but just note that Asahi Glass has come up with Dragontrail in 1/2011, and while I haven't researched it, they anticipated they would quickly take 30% of the market. Also, Gorilla Glass is based on some old patents, I think, so I wonder how long the patent on that lasts.

  • Report this Comment On October 03, 2011, at 9:55 PM, IAO1985 wrote:

    GLW sounds nice but why take a stake in them over just one product. I know they have been a glass company for years, but all of a sudden the make a miracle glass and there going to make billions. I wouldn't count on it.

    My opinion the best way to play the smartphone and tablet growth is to own AAPL. Everything else just seems speculative.

    Long AAPL.

  • Report this Comment On October 03, 2011, at 11:12 PM, dividendgrowth wrote:

    You need to sell hundreds of smartphones to make up the loss of 1 big screen TV.

    You need to sell dozens of smartphones to make up the loss of 1 laptop.

    You need to sell at least 2 tablets to make the up the loss of 1 laptop.

    Sorry, GLW is all but a TV panel company. The growth in big flat screen TV is over, so does the good time for GLW.

  • Report this Comment On October 04, 2011, at 7:41 AM, antsy65 wrote:

    The article sounds reasonable and by chance I have been following Corning too for the last few months. I wonder why the writer, Anand Chokkavelu, has not bothered to buy some shares himself if he really believes what he writes.

    I think the disclosures at the end of articles are a great innovation. However, writers just need to buy one single share to be able to claim that they have invested in the share(s) they have recommended.

  • Report this Comment On October 04, 2011, at 9:49 AM, plhs70 wrote:

    GLW is already poised to capture the next gen tv market, OLED. Forget Gorilla Glass, OLED will spur all future growth.

  • Report this Comment On October 04, 2011, at 9:49 AM, Mainstreet102 wrote:

    Coming from the Consumer Electronics industry I can tell you growth in flat screen LCD TVs has slowed dramatically. Or as we like to say "everyone that wants one already has two". Add to that the fact that LED is the next wave & LCD screens have become the "cheaper alternative", and you have a sceanario for declining demand & downward pricing pressure. Not a great situation for a Co that derives half its biz from LCD screens. While the gorilla glass position is intriguing, I think AAPL is a better play.

  • Report this Comment On October 04, 2011, at 12:59 PM, TMFBomb wrote:


    I do think BAC is an interesting speculative play. I'd also look into Citigroup if BAC is compelling to you.


    There is certainly competition out there that needs to be factored in, but I'm more impressed by Corning's past performance than projections from competitors.


    One does not preclude the other. Also, I like Corning for more than just the Gorilla glass.


    Yup, the bigger the form factor, the bigger the opportunity/threat for Corning. If the LCD business falls rapidly, that could be big trouble. In my write-up, I'm banking on that not being the case (at least not by so much that the stock's expensive at these prices.).


    A few things to remember:

    - I must adhere to the Fool's trading guidelines.

    - Everyone has different goals and risk tolerances in their portfolios.

    - My personal strategy is to use a good deal of index ETF's and a few carefully chosen actively managed mutual funds to get broad market exposure. I then personally buy individual stocks that I think present excellent value -- so I tend to be patient and monitor companies on my watchlist for especially low valuations. This means a very high bar. That said, I am seriously considering Corning for my personal portfolio when my trading restrictions lift.


    Yes, Corning believes it will be in good shape if OLED is successful.


    Like with most consumer durables, I'm banking on some reasonable replacement cycle rather than a steep fall-off in sales.

    Fool on,


  • Report this Comment On October 04, 2011, at 3:48 PM, GtownRJ wrote:

    For the BAC and C fans, take a look at MFG, they were hit extra hard do to the earth quake, and do not have the monsterous (what I like to call) funny money (good will, intangibles) that the other big banks do. Not a recomendation just something to do DD on.

  • Report this Comment On October 05, 2011, at 12:12 AM, mikecart1 wrote:

    I own both BAC and C and right now I'm just planting the seeds for an early retirement. There will be a day when either stock goes up $1 in a day. On those days, I visit the car dealership haha!

  • Report this Comment On October 05, 2011, at 4:29 PM, Calimesa wrote:

    One thing to remember is that although LCD panels are the key mention here and maybe a declining revenue source, it is the glass panel in front of that LCD panel that corning has the lead on this include the glass panel on the front of LED panels. I just hope GLW stays down for a little while more till I can raise the funds to make an investment.

  • Report this Comment On October 05, 2011, at 8:22 PM, Kidron02 wrote:

    I hope this is right, I bought several lots in '08, '09 and '10 and i am in a BIG HOLE on them. At this price, maybe I will by more to bring down my $ avg. I cannot wait to get close to even and unload. I'm just say'n, that is my situation.

  • Report this Comment On October 06, 2011, at 6:53 PM, ishtarspurse wrote:

    nutz!! 25% increase in about a week!! thanks man!!

  • Report this Comment On October 07, 2011, at 5:31 PM, dp23peace wrote:

    Don't worry about missing the boat on this one because of the quick 25% increase. The market is not all of a sudden going to blast onwards and upwards from here, and neither is this stock. Be patient and I think you will have another opportunity or two. Just decide what is good value for you and be disciplined when it gets there.

    Go to the Corning website, or search for their video about a day of glass, or something like that. It's an amazing visual of all the things they think they can do with glass and electronics in the future. If you believe in the management and their continued innovation than the video will give you a glimpse of what opportunities lie ahead for them.

  • Report this Comment On October 08, 2011, at 11:42 AM, osbornej wrote:

    It's "A Day Made of Glass". Very pretty video, I'm particularly impressed that they are working on "flexible" glass. Nothing wrong with their vision, that's for sure. Can they make their vision reality? I don't know. Having visited the Corning Museum in upstate NY, I'm convinced they're committed to glass being a major technical and cultural player now and in the future.

  • Report this Comment On October 09, 2011, at 1:41 PM, mrspence wrote:

    Hi all, just looking at this share after reading the email spaming I received.

    I see that it has paid out 20c in total dividends for the 2011 yr, that seems to be way out for a share that trades at just over 13c

    What am I missing, any help much appreciated


  • Report this Comment On October 09, 2011, at 6:10 PM, TMFBomb wrote:


    If this is an unsolicited e-mail touting a penny stock, I would ignore.

    Fool on,


  • Report this Comment On October 09, 2011, at 9:49 PM, ichibon wrote:

    I was hooked on Rule Breakers primarily because I was snagged by the pitch on nxpi. Did it get booted? No one mentions it anywhere!!!!

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