Buy, Sell, or Hold Corning?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

A 160-year-old company that produced light bulbs for Thomas Edison, bakeware for mom, mirrors for the Hubble Telescope, and iPhone screens? What investor wouldn't be proud to own stock in this company? As a 10% tumble after glassmaker Corning's (NYSE: GLW  ) latest earnings release revealed, quite a few.

Is this sell-off a good time to buy? Or are current owners looking through rose-colored glass? Let's take a look at all sides.

A beautiful balance sheet.
Corning sports a svelte balance sheet, with a debt-to-equity ratio of 0.11 and enough earnings to cover interest on its debt almost 40 times over. Along with no debt problems, Corning stuffed its free cash flow over the years into its overflowing bank of $5.8 billion in cash and equivalents. This cash powers both its dividend, which yields 2.3% and is in no danger at only a 13% payout ratio, and the research and development keeping Corning alive over the centuries. This leads to the second buy reason.

Last year, Corning spent 8.5% of sales on research and development. This level of investment helped Corning enter its numerous industries and opens the possibility of future applications. Right now, Corning makes glass for monitors, televisions, tablets, phones, and cooktops, as well as fiber optic cable, catalytic convertor filters, and lab and cell culturing equipment. It also has joint ventures that produce materials for the semiconductor, solar-energy, and architecture industries. Even though it seems like a slow-moving manufacturer, it has plenty of potential to keep innovating. Just take a look at this YouTube video showing how Corning envisions the future.

Microsoft's (Nasdaq: MSFT  ) Surface 2.0 showcases the potential in application for Corning's super-strong Gorilla Glass. The newest Surface product began shipping in January with a 40-inch Samsung LCD -- albeit at a pricey $8,400. And of course, it is made with Corning's tough glass to make sure the screen will stand up to the pressures of touch computing and any object resting on the Surface's surface.

Sales from the specialty materials division, which includes Corning's largest growth product, Gorilla Glass, doubled to more than $1 billion in 2011. However, Japanese companies Asahi Glass and Nippon Electric Glass are forming their own rivals to Gorilla Glass, like Asahi's Dragontail brand of glass, which it hopes will capture 30% of the market. With the search for more applications of strengthened glass, having a few competitors grab slices of the market may not mean much. But it does show that Corning's lead in technology is not insurmountable, and that could lead to lower margins with a product that could become more commoditized.

Dependent on a faltering industry. Corning's display technologies segment, which includes making glass for LCD screens, account for 90% of its profit. But as The Economist reports, none of the companies that produce LCD panels make money selling them. After 2011, Sony (NYSE: SNE  ) would lose money for the eighth year in a row in its TV business, while Panasonic's (NYSE: PC  ) TV segment expects to lose money for its fourth year in a row. To stem its losses, Sony sold its half of an LCD making joint venture it had with Samsung in December, taking $935 million in cash from Samsung and a charge of $846 million to write off the rest of the business. Both Sony and Panasonic also just had their debt ratings downgraded by Moody's, and Panasonic's debt ballooned from 100 billion yen to 550 billion yen last year. Panasonic Samsung Corning Precision, the joint venture between Corning and Samsung that produces LCD glass, may begin to feel a squeeze if the flat-panel business remains bleak.

Low insider ownership.
Insider ownership totals a measly 0.71%, but for a 160-year-old, $20 billion company, it might be hard for executives to own a larger share. However, even looking at the straight figures does not give an investor confidence. CEO Wendell Weeks holds only about $5 million worth of shares, after earning about $10 million a year since 2006. A better sign for shareholders would be for executives to hold at least a few years' worth of salary as stock.

My call
Our Stock Advisor service recommended Corning in August, and the price is even more attractive now. I've already made a bullish CAPScall, and I expect Corning to continue to pocket cash in new industries and applications over the long term, while continuing to share cash with investors.

I think Corning is a great pick for the future, but our analysts have selected a different stock that they believe is poised for tremendous growth in 2012. Find out which company in our new free report: "The Motley Fool's Top Stock for 2012." Thousands have already requested access. Check it out for free.

Fool contributor Dan Newman hopes the power doesn't go out when looking into a future mirror. He also holds shares of Corning. Follow him on Twitter, where he goes by @TMFHelloNewman. The Motley Fool owns shares of Corning. Motley Fool newsletter services have recommended buying shares of Corning. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 (1) | Recommend This Article (15)

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 February 06, 2012, at 10:10 AM, TMFSpiffyPop wrote:

    Nice job on the CAPScall, Dan. Thanks for stepping up and saying, "Score me." Very Foolish. Best! --David

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1773439, ~/Articles/ArticleHandler.aspx, 5/29/2016 11:32:54 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 17,873.22 44.93 0.25%
S&P 500 2,099.06 8.96 0.43%
NASD 4,933.51 31.74 0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/27/2016 4:00 PM
GLW $20.51 Up +0.38 +1.89%
Corning CAPS Rating: *****
MSFT $52.32 Up +0.43 +0.83%
Microsoft CAPS Rating: ****
PCRFY $8.81 Down -0.08 -0.84%
Panasonic Corporat… CAPS Rating: ***
SNE $28.02 Down -0.03 -0.11%
Sony Corp (ADR) CAPS Rating: ***