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Better Buy: Corning Inc. vs. Universal Display Corp.

By Anders Bylund – Apr 23, 2018 at 2:37PM

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There are no real losers in this moneymaking battle.

Both Corning (GLW 1.46%) and Universal Display (OLED 0.86%) are essential ingredients in today's best smartphone displays, among many other things. But the two companies approach their shared markets from very different angles, and their stocks fit wildly different investor profiles.

So which one is the better fit for your portfolio -- the inveterate glassware wrangler or the OLED technology researcher?

Let's find out.

By the numbers

The fundamental differences between Corning and Universal Display are strikingly obvious, starting with a glance at their recent results:

Metric

Corning

Universal Display

Year founded

1851

1994

Market cap

$23.6 billion

$4.4 billion

Revenue (TTM)

$10.1 billion

$336 million

Free cash flows (TTM)

$200 million

$104 million

Revenue growth, year over year

6.5%

55.4%

Earnings growth, year over year

25%

50%

Data source: YCharts, as of April 23, 2018. TTM = trailing 12 months.

We're pitting a centennial household name against a relative newcomer. It's mature stability against high-octane growth, though Corning is pulling off some impressive earnings improvements of its own at the moment.

Mr. Market is valuing the two stocks accordingly. You can pick up Corning shares at deep-value prices such as 14 times forward earnings and 2.3 times trailing sales. For Universal Display, you'll need to pony up for share prices of 23 times forward earnings and 6.7 times trailing sales. Corning investors have pocketed a 24% return over the last three years, right in line with the general stock market, while Universal Display's prices doubled.

All of this is par for the course when comparing a mature cash cow against a smaller but fast-growing business.

Businessman stands with his back to the viewer, considering two arrows pointing in opposite directions on the wall ahead.

Image source: Getty Images.

The case for Corning

So we've established that Universal Display might appeal to growth investors while Corning is more of a value investment. But is either one of these tickers actually a good investment for these specific target audiences?

At Corning, sales are booming in the optical communications division while display technologies are taking a breather. The company is selling fiber-optic cable as fast as it can make them, and the Gorilla Glass you see on mobile devices isn't far behind. The company is investing billions into expanding its manufacturing capacity in these areas, putting a lid on cash flows in early 2018 but setting Corning up for greater gains in the long run.

Fellow Fool Matthew Cochrane believes that Corning is an excellent buy at today's prices, and I'd agree. For value-conscious investors, it's hard to go wrong with this stock, which is trading down on short-term concerns while the company is building a stronger long-term future.

Why buy Universal Display?

As for Universal Display, the stock skyrocketed in 2017 on reports that Apple (AAPL -1.26%) would finally incorporate the company's organic light-emitting diode technologies in its popular iPhone line of smartphones. The rumors turned out to be correct, sending Universal Display shares even higher up in the stratosphere.

By the same token, recent reports of Apple's OLED-equipped iPhone X running into manufacturing issues and relatively low demand weigh heavy on Universal Display's share prices today. Fair enough -- Cupertino giveth and Cupertino taketh away.

But both of these market reactions were overdone. Apple's business is certainly a welcome addition to Universal Display's portfolio, but it isn't a game-changing boost by any means. For one, the Android side of the smartphone market already provides plenty of business opportunity. In addition, the technology is exploring several new markets that should eventually turn the smartphone market into a fairly forgettable sideshow to the main attractions.

Since Universal Display tends to get paid by the total surface area its customers cover in OLED elements, large-screen TV sets ay soon become the company's main driver of revenue growth. One 55-inch TV set represents the same top-line sales as roughly 100 5.5-inch smartphone screens.

Beyond that, lighting panels could soon dwarf even the TV business. These are the true value drivers behind Universal Display's business and market value, and the market seems to be ignoring them these days.

But if I have to pick a winner...

There's nothing wrong with either one of these companies, or of their stocks, but Universal Display gets my vote if you're looking for a tiebreaker.

Both Corning and Universal Display are excellent investments right now. Personally, I own the OLED researcher but not the glassware veteran, mostly because that's just the kind of investor I am.

Your mileage may vary.

Anders Bylund owns shares of Universal Display. The Motley Fool owns shares of and recommends Apple and Universal Display. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$149.84 (-1.26%) $-1.92
Corning Incorporated Stock Quote
Corning Incorporated
GLW
$29.93 (1.46%) $0.43
Universal Display Corporation Stock Quote
Universal Display Corporation
OLED
$97.60 (0.86%) $0.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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