Corning, Inc. (GLW) appears to offer value, but that has been the case for a long time and the stock continues to languish. The latest problem for investors to consider is the growing number of worsening macro issues. This includes signs of fresh economic weakness in China and the United States, and a major recession developing in many European countries. While the stock does not appear overvalued, recent events in the economy and the tech industry indicate that Corning shares could be heading lower. While I like the stock for the long term, I believe a better buying opportunity is coming. If the company misses earnings or gives disappointing guidance, the shares could drop substantially. It is probably safer to buy this stock only after earnings and guidance is reported and on a big drop on heavy volume. Here are a few key points to consider:
- Corning has a significant amount of revenue coming from outside the United States. More investors are realizing that multinational corporations based in the U.S. are going to be impacted by the strength of the dollar. Profits earned in foreign countries are reduced when the dollar is strong as it has been for the past quarter.
- The economy in China is slowing much faster than most expected. A weakening economic picture in China and Asia in general, could significantly impact sales of televisions. Since Corning supplies many television manufacturers with the glass used for the screens, the company could see additional weakness in what was already a trouble spot earlier this year.
- Europe is likely to be weak for Corning in general because televisions, tablets and the sales of high-end smartphones will probably show signs of a slowdown. (Corning also makes the glass used in a number of popular phones and tablets.) The unemployment rate in the eurozone recently crossed over 11%, and in countries like Spain the rate is more than double, at about 23%. More layoffs are likely at major European companies and consumers without jobs are not often big consumers of televisions, tablets or phones.
- A number of companies have warned that earnings or guidance will not meet investor expectations and that includes some top tech companies. Just days ago, Advanced Micro Devices (AMD) announced a big shortfall in revenue for the second quarter. Analysts expected sales of $1.63 billion, but due to weaker sales in Europe and China, the company now expects $1.41 billion in revenue. As earnings season is just getting started, it's reasonable to expect more earnings and guidance shortfalls which could drive the markets and Corning shares even lower.
While Corning is a high-quality company, the macro environment is extremely challenging on a number of fronts. Based on the factors cited above, it seems increasingly likely that Corning will possibly be impacted by the stronger dollar and the weakening global economy. Patient investors could be poised for a much better buying opportunity on what could be a continued sell-off in this stock.
Key Data Points For Corning From Yahoo Finance:
- Current Share Price: $12.42
- 52-Week Range: $11.51 to $17.35
- Dividend: 30 cents, which yields 2.4%
- 2012 Earnings Estimate: $1.36 per share
- 2013 Earnings Estimate: $1.52 per share
- P/E Ratio: about 9 times earnings
Data sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.