Corning: A Sure Value Play At These Levels

| About: Corning Inc. (GLW)

Generally disclosures would come at the end of an article, but in this case I feel it is appropriate to lead off by stating that I purchased shares of Corning (NYSE:GLW) early last week and it was one of the tougher buys I forced myself to make in the past few years. I would consider myself a dividend investor who makes safe plays - meaning safe stocks at a safe price. Corning is very different. In my head I knew there were a number of reasons not to touch this stock, but deep down I knew that this stock had troughed and decided to pull the trigger. As an aside, I like to write a list of reasons as to why I am going to purchase a given stock. It should be convincing enough that a third party would buy it, and you should also use the list in the future to reevaluate your position and check whether or not you should be selling. Moving on…

First, I would normally not even look at a stock like this and this is because it is not immediately apparent where Corning's revenue comes from. For instance, I like PepsiCo (NYSE:PEP) because I know they sell soda, orange juice, Gatorade, potato chips, and oatmeal. Their profits are derived from the price of the inputs and how much they sell of each. Corning was not as readily apparent. When I hear the name Corning, I think Gorilla Glass and kitchen dishes, but I was not really sure what other products they sold, or if they had any groundbreaking products that would impact our nation's future. This prompted me to spend several hours on their website and reading Corning's annuals (since there is no excuse for failing to perform your own due diligence.) I also like to check the company's page on Trefis, which provides a very basic breakdown of a company's product segments.

Though not make or break, display technology is currently the driving force behind Corning's profits. This is not to say that this could not change at any time. Corning has been around for over a century and a half and I'm pretty sure they didn't have smartphones during the Civil War. This is obviously a huge industry. I also own Apple (NASDAQ:AAPL) stock and an iPhone, and am intrigued by stocks that move based on the number of phones sold. This product is also used in other smartphones as well and more importantly, in tablets like the iPad.

Neither tablets nor smartphones have reached market saturation yet and there is plenty of room to grow. Unfortunately for Corning, the price of display glass components is dropping and affecting their margins. So even though more and more of these products are being sold, Corning is not seeing as much from these sales.

On the plus side Gorilla Glass 2 is waiting in the wings and could make a huge splash in sales. Of course I feared that this was already worked into the price, since it was no big secret that this product was coming out. Furthermore, it may even be too worked into the price, meaning: imagine what would happen to the Corning's stock price if Apple were to announce that it has chosen another supplier for the iPhone 5.

Speaking of Apple, with Corning only being worth roughly $20 billion there is the chance, however small, that Apple or another large cap with ample cash on hand could come in and purchase Corning. For them this would constitute vertical integration as they would be able to reduce their costs on components for their products while at the same time limiting the availability to competitors. This would also require any prospective buyer to pay Corning a substantial premium over their current price around $13.50.

These arguments aside, the underlying reason I decided to purchase Corning was because of their charts, as seen below.

It's not a very pretty chart. Over the last year Corning has dropped from the $22 area to the $12-13 range. Corning has not been down around this level since early 2009. At $13.50, Corning is yielding a 2.2% dividend and trading at a P/E of only 7.67. This is absurdly low for a company with as rich a history as Corning and was my ultimate decider in purchasing the stock.

My point is that picking stocks is not always easy. Buying a safe, secure dividend appreciator is perfect for some portfolios, but others require calculated risk and this is what Corning offers at this price. The company is in it for the long haul, with a product superior to that of competitors, and trading at an unjustifiably low price based on a single poor earnings call. Corning represents a classic value play for either the short or long term depending on the wants of the buyer. Either way there are more positives right now to purchasing Corning now than negatives, and a prudent investor would capitalize on the opportunity.

Disclosure: I am long GLW, AAPL, PEP.