Why Corning Looks Like a Buy

"Opportunity is missed by most people because it is dressed in overalls and looks like work." So said Thomas Edison, perhaps before he commissioned Corning (NYS: GLW) to create for him the first light bulb.

More than 160 years later, Corning remains a leading manufacturer of specialty glass and ceramics. However, the stock slid nearly 10% last week after the company's fourth-quarter earnings came in below analyst expectations. The market's harsh reaction to the miss creates an opportunity for investors to buy a great business at a steep discount.

The stock is trading near a 52-week low, with shares priced at $12.62. Corning makes the thin panels of glass used in large-screen TVs for leading brands such as Sony (NYS: SNE) . Weak demand for flat-screen televisions, combined with high prices of glass, has hurt profit margins. Fourth-quarter profit took a 53% year-over-year nosedive, with net income falling to $491 million, down from $1.04 billion a year earlier.

Investors willing to accept that 2012 will be a tough year for Corning should buy and hold shares for their promise of long-term returns. You don't stay in business more than a century without experiencing setbacks along the way. However, strong glass sales in emerging markets should continue, in tandem with rising smartphone and tablet sales -- giving Corning the push it needs.

Heart of glass
Corning's industry-leading Gorilla Glass, which is used as the protective covering for smartphones and tablet computers, benefits from a booming mobile market. Sales of Gorilla Glass nearly tripled last quarter -- a trend that the company expects to continue into 2013.

As one of the company's fastest-growing businesses, Corning plans to launch Gorilla Glass 2 later this year. The second-generation glass already has the support of customers such as Microsoft (NAS: MSFT) , whose new Windows PC computers will feature the new impact-resistant glass, which is 20% thinner and enhances the touchscreen experience. It looks to be the best product available for mobile devices.

Forward thinking
By 2014, Corning expects to boost sales of the glass by more than 50%, helped by the increased popularity of touchscreen devices. More than 30 major brands use Gorilla Glass, and it's featured on 200 million devices worldwide. But it'll take more than mere sales of Gorilla Glass to lift the company back into profitable territory.

Corning's 50% interest in silicone-product maker Dow Chemical (NYS: DOW) remains a sore spot for earnings. Corning predicts that future earnings will decline between 5% and 20% on weak performance in the company's Dow Corning segment. However, CEO Wendall Weeks points out the value of the segment's leading market position in the polysilicon industry.

Long-term outlook is bright
Looking at the bigger picture, it seems that these setbacks will make Corning more efficient, as management looks to streamline its operations. The company's strong foundation and rich history of innovation spanning more than 160 years give me reason to believe Corning will return to profitability in the years ahead. Investors looking to unlock value in the near term can appreciate the company's 2.38% dividend yield and attractive P/E of just 5.98.

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At the time thisarticle was published Fool contributor Tamara Rutter owns no shares of any companies mentioned in this column. You can follow her on Twitter for more Foolish insight by using the Twitter handle @TamaraRutter. The Motley Fool owns shares of Corning and Microsoft. Motley Fool newsletter services have recommended buying shares of Corning and Microsoft and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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