This is one of our positions we are pretty excited about. In spite of the horrible volatility and unrelenting negative headlines, life will go on and money can be made in the market. The technical set up for GLW is not great. I expect it to go down tomorrow but put this on your radar. Especially take notice of the 2013 Jan 12.5 calls. They can be purchased for under $3 which looks really cheap to me for in the money Leaps on a blue chip company. GLW debt was just upgraded by Moody’s to A3. They have $4.1 billion in net cash.
Moody’s wrote, “The higher rating balances Corning’s exposure to cyclical and technology sensitive industries with financial policies and balance sheet strength that provide significant flexibility to mitigate inherent volatility in the company’s operations. While the company may experience slower growth in its large display segment, this should lower capital expenditure needs over time and lead to stronger free cash flow generation. In addition, growth in its other business segments should contribute to an improving balance in its business mix over that period. ”
What excites me though is their Gorilla glass product which can be found in iPhones, iPads, and soon every mobile device out there including notebooks. If you haven’t noticed how durable the new generations of iPhone displays are yet, you are babying your phone. Sure TV sales are down in the developed markets, but their is still huge long term growth in TV display markets in the emerging markets. Fiber is growing well, and Corning has a long history of bringing products out of internal R&D. But here is the kicker. Even in the nadir of 2008 Corning only reached a low of $8. This is before they had possibly the biggest product maybe in their 160 year history.
Back in 1962 Corning invented a new type of glass that is nearly unbreakable, flexible, and highly-scratch resistant. Initially called ChemChor, it was an outstanding discovery, but Corning couldn’t come up with any practical commercial use for it. So the secret formula was locked away until its function could become usable for the marketplace.
Corning Glass photo
Fast-forward another 46 years until 2008 and the hidden patent is brought out, renamed Gorilla Glass and is sold to cellphone manufacturers as a protective cover for their touch-screens. Now the product is found on almost every cell phone, MP3 player, and other mobile devices. Its super strength means it can be effective while remaining very thin. Now the product has found still another modern use, that of a flat-screen tv cover. With the new developments in flat-screen technology leading to the “picture-on-the-wall” television receivers and e-readers, sales are expected to explode over the next few years. Corning expects that by 2015, Gorilla Glass will be its second-leading source of sales income.
To cement the thesis, the CFO James Flaws bought 75,000 shares in August at $13.52. There have been a few recent posts on Seeking Alpha as well. This one explains the Gorilla glass opportunity and one just today gives some fundamental valuation analysis.