This Company’s Gorilla Glass Can Make You Bank Next Year

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

Editor's Note: TEL sold their Touch Screen business in May 2012. This version has been corrected and we regret the error.

Corning (NYSE: GLW) is expected to post sales growth of 6% in 2013 on the back of LCD improvements following weakness in 2012. Macro concerns have pressured the company of late, which has been essentially flat year-to-date. Billionaire Ray Dalio upped his stake over 150% in Corning last quarter (check out Ray Dalio's big bets).

Corning's big growth driver has been its Gorilla glass, which is used for handheld devices and tablets. The product is a tough, flexible, scratch-resistant glass formulation. Gorilla glass is already being used in cell phones from Motorola and Samsung, and notebooks from Dell. The company has robust expectations for this segment in particular, predicting that the number of mobile phones using Gorilla glass will quadruple over the next four years. Tablets should also play a key role in this expansion, with an estimated 180 million devices set to have the glass by 2014, compared to a mere 20 million in 2010.

Corning’s long-standing relationship with TV manufacturers has carried the company so far, but it has also been diversifying its business model via acquisitions, including the 2010 acquisition of Plaslab, which manufactures plastic laboratory consumables. Corning has also made strides in the telecom business with its recent acquisition of MobileAccess – a provider of distributed antenna system (DAS) solutions.

From a valuation standpoint, Corning appears to be best-in-show. The glass technology company offers investors the top dividend of its closest competitors with a 2.7% yield, while also giving the best 'growth at a reasonable price' opportunity, trading at a 0.8 PEG. Corning also trades at 9x forward earnings and only 7x cash flow. We like the company's profitability and balance sheet, and it has one of its industry's highest gross profit margins (55%).

So who are some key peers to watch?

PPG Industries (NYSE: PPG) provides protective coatings, including those in the glass industry. The chemical company has managed to be up 50% year-to-date on the back of solid M&A activity. PPG is the richest of the stocks listed at 23x forward earnings and 15x cash flow, but only offers investors mediocre growth at a 10% 5-year expected EPS CAGR. We like PPG’s diversity in the chemical industry, but would rather have Corning’s more concentrated exposure in the tech market. PPG calls billionaire Jim Simons as one of its big-name investors (see all of Jim Simons' top picks).

TE Connectivity (NYSE: TEL), meanwhile, is a manufacturer that is up nearly 20% year-to-date on rising demand. The stock has solid growth in line with other technology companies at a 10% long-term EPS CAGR. Next to Corning, TE is one of the cheapest in the industry at an 11x forward P/E and 9x cash flow. TE should be able to grow its business in a similar manner as Corning, thanks to robust demand for mobile devices. Ken Griffin - founder of Citadel Investment Group - is one of TE's biggest supporters (check out Ken Griffin's latest picks).

3M (NYSE: MMM) is a diversified tech company with exposure to healthcare, transportation, office, display and much more, and is up 12% since the start of the year. The tech company recently acquired Ceradyne, which will give 3M a better footing in industries that require ceramics. 3M does trade in the mid-range of the industry at 15x earnings, but has one of the stronger gross profit margins (50%) and balance sheets (18% debt ratio) out there. Given its diverse product base, 0.9 beta, and 2.5% dividend yield, 3M is a solid large-cap bet that has the potential to grow.

Becton, Dickinson and Co. (NYSE: BDX) has the lowest expected growth of the five stocks listed, with only a 7% 5-year EPS CAGR. Although Becton has historically been a healthcare company, it has been making strides in tech, recently acquiring a company developing anti-stick needles. Given Becton’s mediocre growth and middle-of-the-road valuation, we remain cautious on the stock.

To recap: Corning has a market-leading position with its Gorilla glass. The rapidly growing tech sector, most notably the mobile device and tablet market, will boost demand for Corning’s products while helping it reposition itself as an industry-leader.

This article is written by Marshall Hargrave and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article.
The Motley Fool owns shares of Corning. Motley Fool newsletter services recommend Becton, Dickinson and Co., Corning, and 3M Company. 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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