August 15, 2010 in Business

Consider Corning for your portfolio

 
Associated Press photo

A model flexes a piece of Gorilla glass manufactured by Corning. The ultra-strong glass has been looking for a purpose since its invention in 1962. Corning is hoping it becomes a multibillion-dollar bonanza.
(Full-size photo)

Glassmaker Corning (NYSE: GLW) has found its luster again. The rollout of a new line of glass used mainly in smartphones, along with rebounding global operations and an attractive valuation, make Corning an enticing investment.

The glassmaker has a new growth portal: “gorilla glass,” or hard-to-break, scratch-resistant glass that’s good for touch devices. It expects up to $1 billion in annual sales for this product line by 2012.

Meanwhile, Corning is picking up steam from the global recovery. It boasts LCD TV market share of 60 percent and sees growth in the sector globally. Consumers in Japan are upgrading their LCD TV sets to larger units at a 3-to-1 rate.

In Corning’s first quarter, net sales spiked 57 percent over year-ago levels, and the company ended the quarter with $3.9 billion in cash and equivalents, posting positive free cash flow in the quarter for the first time since 2004.

Of course, like any company, it faces risks. A slowdown in the global recovery would probably impact Corning’s sales. Although the potential for a double dip is on the table, the chances are more likely that we see only a moderation in growth versus a drop back into negative territory.

Still, the prospects for Corning look good. With share prices near $18, it sports a P/E ratio of 10, compared with 19 for the industry.

Ask the Fool

Q: Are IPOs good investments? – D.A., Farmington, N.M.

A: It’s best to steer clear of most initial public offerings (IPOs), as they can be volatile and frequently don’t fare too well in their first year. Also, it’s mainly been the rich or well-connected who get shares at their low initial prices. The rest of us end up buying later, often after prices have risen considerably.

Electric carmaker Tesla Motors, for instance, debuted its shares at $19 in June, and buyers quickly bid them up past $30. They were recently trading at around $21.

For more on IPOs, head to www.Fool.com and type “IPO” in our search box up top. For a schedule of upcoming IPOs, visit www.ipocentral.com.

Q: When a company has an IPO, do the people who have owned the company keep their ownership? How? – F.B., New Philadelphia, Ohio

A: When a company “goes public” with an IPO, it usually sells only part of itself. Here’s a simplified example: Imagine that the owner of the Free Range Onion Company (ticker: BULBZ) decides to sell 20 percent of it to the public via an IPO, to raise money for expansion. She currently owns all of the 80 million shares of the company and will sell 20 million new shares, so there will be 100 million shares after the offering. Investment bankers help her determine the valuation of the company and decide to price the offering at $25 per share. This means her company will collect about $500 million (20 million times $25) when the shares are sold (less the investment bank’s fee of around 7 percent). She will retain ownership of 80 percent of the firm, or 80 million shares.

The dumbest thing I ever did was when I bought GPS specialist Garmin. I knew that GPS devices were selling like hotcakes due to the rapidly growing geocaching hobby and personal navigation for cars. I knew the company did well with aviation GPS, too. My failure was being greedy. I bought at $42 per share and foolishly sat as it soared to three times what I bought it for, and sat on it while it dwindled to less than what I paid. I trusted a big-name brokerage to give me some warning or education. They didn’t. Fees are first. Customers’ money is second. Never again. I learned that no one cares more for my money than I do. – Steve B., Waukesha, Wis.

The Fool responds: You’re right that you’re the one with your own interests most at heart. It would have helped to have a target price in mind. If your best estimate is that the shares are worth $65 when you buy at $42, then you know when to consider selling. Sure, they may keep rising, but they may not, and that’s when you’re being greedy.


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