This Tech Stock Has Big Potential

Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

While the broader market has enjoyed a massive bull run over the past several years, Corning (NYSE: GLW) has done nothing more than hang around. Actually, the stock declined more than 10% over a three-year time frame. When a stock performs poorly during a strong bull run, it’s almost always a red flag for the company’s underlying business and future potential. However, that isn’t the case for Corning.

A lot of potential

If you’re reading this article, then there’s a pretty good chance that Corning is helping you do so. If you’re using a high-speed cable connection, then Corning’s fiber-optic material is driving the data stream. If you’re using a mobile device, then you’re probably reading this through Corning’s Gorilla Glass.

Gorilla Glass is scratch-resistant, lightweight, and strong, which makes it appealing. Corning is also working on Willow Glass, which can basically be described as an ultra-thin and tough glass that bends.

There have been many rumors about Apple’s iWatch using Willow Glass, but Corning released a statement that Willow Glass is still several years away. Apple won’t wait that long to release the iWatch, and it has been widely rumored that this wearable device will be released in late 2014. It turns out that LG Display (NYSE: LPL) should have its curved glass at the ready by the end of this year, and it should be ready for mass production next year. This makes Apple and LG a potential match. LG is already a major provider for Apple screens, so this wouldn’t be a shock.

Getting back to Corning, even if it misses the iWatch freight train, it still made a highly strategic move be investing in View’s Advanced Dynamic Glass technology. The information below is from a Corning news release:

“Representing a major innovation in architectural windows, View Dynamic Glass intelligently regulates the amount of heat and glare that enters a building. Dynamic glass automatically transitions between clear and variable tint in response to environmental conditions and user preferences. Occupants benefit from uninterrupted views, abundant natural light, and greatly improved thermal comfort, while building architects enjoy expanded design freedom.”

This might sound like just another technology with potential, but there is substance here, considering demand has consistently accelerated. The ultimate goal is for Dynamic Glass to enter the mainstream. If that eventually takes place, which seems to be a realistic possibility, then Corning’s potential would be gargantuan.

Corning vs. peers

Corning’s revenue consistently increased the past three years, but earnings have declined over the past two years. The latter would usually be a negative, but in this case, earnings have been partially hit by necessary acquisitions. These acquisitions will help drive future growth.

You don’t have to worry about long-term earnings trends too much with Corning. Management is highly strategic, and they seem to take a long-term approach opposed to pleasing investors right now and then having trouble down the road. Corning consistently delivers profits, and it even delivered strong profits during the difficult years of 2008 and 2009. Other examples of strong management include a profit margin of 22.11% and a debt-to-equity ratio of 0.14. The former indicates efficiency, and the latter demonstrates quality debt management. Yet another bonus is that Corning yields 2.80%.

Applied Materials (NASDAQ: AMAT) is similar in size and business model, but the fundamentals aren’t as strong. Ironically, Applied Materials has outperformed Corning over the past several years. Part of this outperformance was justifiable, considering Applied Materials enjoyed two years of significant revenue and earnings improvements prior to 2012. However, both revenue and earnings declined in 2012. Additionally, Applied Materials sports a profit margin of -5.20%, which either indicates subpar efficiency (can relate to management) or industry weakness. Despite Applied Management demonstrating quality debt management and yielding 2.60%, it doesn’t look to be as strong, or as safe, of a long-term play as Corning.

LG had suffered revenue and earnings declines in 2011, but it bounced right back in both areas in 2012. Earnings have been inconsistent over the years, but the overall trend has been up since 2008. LG sports a profit margin of just 1.22%, and it doesn’t offer any yield, but as long as it maintains a relationship with Apple, upside potential exists.

Conclusion

Corning and LG both have significant upside potential moving forward. If LG’s curved glass proves to be a hit, it will open many doors. If Corning’s investment in Dynamic Glass proves successful, then imagine the demand potential if it hit the mainstream and most builders wanted to use it.

If you’re worried about the stock market being overvalued, then consider investing a small amount in the company you believe in most and adding to that position in small increments if the stock suffers. If the stock appreciates, then you have a small win. 

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Corning. The Motley Fool owns shares of Corning. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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