Corning : A Must Have For A Blue Chip Growth Portfolio

Sep. 6.13 | About: Corning Inc. (GLW)

Readers of my past articles would know a couple of things - firstly that I'm warming up to conglomerates and secondly that I've been a long-term proponent of Corning (NYSE:GLW) as unfairly undervalued. Given that Corning is a conglomerate, let's put two and two together. Does it give you the traditional downside protection of a diversified conglomerate? And is it a buy? My answer to the first is no (in the short-term) and yes (in the long-term). As for is it a buy - we can quibble about the buy points, but there are few growth stocks with as much runway as GLW, an emphatic yes! So here's five points to keep in mind about GLW.

Market Diversity is long-term insurance, short-term is about glass. I like the fact that Corning is using its science competency (and acquisitive power) to create a presence in multiple industries. I'm especially fond of energy and life sciences. But let's be clear - the lion's share of profits in the near term are from glass (displays and optical fiber). There is a resurgence in the latter market as indicated by robust earnings from Ciena (NYSE:CIEN) and Finisar (NASDAQ:FNSR). And the former is up in the long-term with plenty of "excitement" in the interim. The point being, this is not a "low beta" conglomerate - but you'll sleep well if you focus on the long-term.

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Overblown Worries about China Subsidy. On the topic of "excitement" on the glass front - the near-term weakness in GLW comes from worries about Chinese government subsidies on display technologies, and its impact on inventory reduction. Corning management pointed out in the recent Citi Technology conference that they are prepared for the worst here, and would view any favorable action from the Chinese government as unexpected upside.

Historically Low Price-to-Sales (P/S). As a value investor, P/S is a good (and customary) metric to focus on. On that count, Corning is trading at close to the trough of its P/S range (see chart below). Corning's P/S also compares very favorably with other competitors in its market segment.

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Robust Dividend Growth. Corning's dividend is at a satisfactory 2.8%. More importantly, it has more than doubled in the last three years (see below). At the recent Citi conference, James Flaws pointed out that their CapEx is likely to be lower over the next few years because of their aggressive capital investments over the last two. I take that very positively as a dividend investor.

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The Touch Notebook Opportunity. The "crowd noise" around this isn't loud (enough) yet, but a visit to Best Buy would alert you to the extent of this transition. Note that while the unit volume of Notebooks may fall short of mobile devices, the amount of glass that goes into a notebook display is substantially larger.

These are some of the reasons I am looking to add to Corning, already a strong presence in my portfolio. As always, take this as input and do your own due diligence.

Disclosure: I am long GLW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.