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Bmayo32 (50.10)

Why Warren Buffet Should Buy Corning, Inc.

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January 13, 2013 – Comments (13) | RELATED TICKERS: BRK-B , GLW , AAPL

It's asinine for me to be giving advice to someone worth $46 billion, but here goes:

Warren Buffet should buy Corning, Inc. (NYSE: GLW)

1. By george, it's an elephant!

His gun is loaded and his trigger finger is itchy. (Sounds like a personal problem.) But seriously, he said in his annual shareholder level in 2012 he wanted to go elephant hunting, meaning he was looking for companies to acquire (in the $20 billion range). GLW is currently worth about $18 billion.  Berkshire-Hathaway (NYSE: BRK-B) has become so large that smaller acquisitions don't even move the needle.

2. Consistent earnings.

Buffet's teacher at Columbia, Benjamin Graham, cared more about average earnings than 12 month's trailing earnings (and ol' Ben hated forward earnings.) GLW's net income over the last five years works out to $3.2 billion net income per year! 

3. It's cheap.

Buffet has been willing to pay ten times net-income in the past.  Valuing GLW at ten times net income would put them at a $32 billion market cap. That makes them grossly undervalued compared to their current market capitalization.

4. Green lasers (Pew pew pew!)

"Green lasers" refers to laser projection technology that would allow cell phones/tablets to show videos and movies on walls. This is only one of Corning's many exciting future technology projects.  As a matter of fact, GLW spends $1 billion per year on research and development. This R&D has resulted in huge innovative breakthroughs such as gorilla glass, willow glass, LCD glass, etc. Like several big companies (Google, IBM, etc.) their efforts in R&D will advance their technology greatly. (Hey, maybe we could get them to do something with copy machines. SERIOUSLY, COPY MACHINES NEVER WORK.)

5. Gorilla glass is the future.

Actually, it's already here. Everyone you know has a smart phone or a tablet or a mixture of both. Your friends have it, your mom has it, the kid down the street has it, and ITS ALL COVERED IN GORILLA GLASS! Rapidly developing countries (China, India, Brazil, Russia) are just now getting into the smart phone game. With global smart phone sales reaching over one billion devices this year, you can bet GLW is going to get their share of that action.

6. Berkshire-Hathaway doesn't have enough history.

Starting in 1888, BRK just isn't old enough to be tried and true (obviously, I'm being sarcastic.)  However, it is worth noting that GLW was founded in 1851. (Millard Fillmore was president, and that dude was 3 presidents before Lincoln!) That means the company has survived the Civil War, two World Wars, a tech boom and crash, the Great Depression and many MANY other events.

7. I own lots of GLW.

One of the reasons I own GLW (and a lot of it....so much...) is that they are trading below book value, which means Wall Street is valuing them worth more dead than alive. They also have no debt after backing out net cash. They pay a 3.1% dividend. I like the CEO. He joined Corning in 1983 and worked his way up to CEO in 2005. I believe Corning's future is blindingly bright. Just check out this video, called 'A Day Made of Glass.'

It's worth noting that I love Mr. Buffet. He's giving away the majority of all the money he's ever earned to charity. He's funny, humble, intelligent, and shrewd. I admire Berkshire's results. I post Berkshire's results on my wall (my actual wall, not my facebook wall) for inspiration and humility....because my personal returns suck compared to theirs. 

What I'm trying to say is, if Warren Buffet walked into my office and asked me for advice on future investments (hey, a man can dream, right?) I would not hesitate to say "Buy Corning. Buy the whole damn company." 

13 Comments – Post Your Own

#1) On January 14, 2013 at 1:52 PM, valuemoney (99.99) wrote:

GLW is not that great of a company. Tell me this. How could GLW underperform the market so much since 1980? Look at GLW effective tax rates. Tell me why they are so low. Earning are far from consistant look at a ten year summary. I can name 50 companies in the S&P that I would rather buy at current prices that are a better deal than GLW. And ALL of these companies have outperformed the market since 1980 by a large margin.

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#2) On January 14, 2013 at 2:14 PM, judysway (44.60) wrote:

I agree with this writer, I also have viewed "A Day Made of Glass" and all of Corning's other videos to see our future....Awesome!  Wall TV's, Phones, Counter tops with video displays, windows that close the shades inside with a fingertip, cars, glass pads that start the car controls for videos or directions...one device brings another to life.  This stock will soar as America regains her power.  Big mistake if you are not in both Apple and Corning.  Do not underestimate this company, I just bought more today!

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#3) On January 14, 2013 at 2:20 PM, judysway (44.60) wrote:

I agree with this writer, I also have viewed "A Day Made of Glass" and all of Corning's other videos to see our future....Awesome!  Wall TV's, Phones, Counter tops with video displays, windows that close the shades inside with a fingertip, cars, glass pads that start the car controls for videos or directions...one device brings another to life.  This stock will soar as America regains her power.  Big mistake if you are not in both Apple and Corning.  Do not underestimate this company, I just bought more today!

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#4) On January 14, 2013 at 2:36 PM, Bmayo32 (50.10) wrote:

Well valuemoney, I have to give you props.  You are ranked #5 out of 75,059 members!.....so, I'm definitely glad to hear you out!  I just think they're trading well below net-assets, and view them as a dollar selling for 50 cents.  I know you know this, but you could use a stop-loss order to cover your downside risk, and I think the upside potential makes Corning worth owning.

 

Thank you judysway way for the comment!  Best of luck to you!  

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#5) On January 14, 2013 at 2:42 PM, valuemoney (99.99) wrote:

What about since 1985? has it beat the S&P..... nope

1990? nope

1995? nope

2000? definately not

2005? nope

2010? nope

Not trying to rain on your party but you would think over one of them time periods GLW would at least beat the market if it was even one of top 250th or above companies in the S&P 500. Maybe I am wrong but I would sure like to here your rebutal on that. 

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#6) On January 14, 2013 at 2:47 PM, valuemoney (99.99) wrote:

And I am not saying it isn't worth anything either! It does have value. It is not at such a big discount as one might think when just glancing at earnings. Quality and consistancy of earnings plays a big part. ESPECIALLY if you are buying the company outright.

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#7) On January 14, 2013 at 2:51 PM, valuemoney (99.99) wrote:

My valuemoney caps page made up of mostly garabage picks to garner caps points. If you want to look at something were you can accually get some good ideas about investing go to valuemoneygreen. Those aren't a bunch of garbage picks.

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#8) On January 14, 2013 at 2:53 PM, valuemoney (99.99) wrote:

valuemoneygreen

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#9) On January 14, 2013 at 3:35 PM, Mega (99.95) wrote:

valuemoney, a lot of the past underperformance comes from legal problems. Their subsidiary Dow Corning went bankrupt from silicone breast implant lawsuits and Owens Corning and Pittsburgh Corning went bankrupt from asbestos lawsuits.

Corning in the 1980s and 1990s has pretty limited relevance to Corning in the 2010s. Their product mix is totally different as is management.

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#10) On January 14, 2013 at 4:09 PM, Mega (99.95) wrote:

By the way, at least two of valuemoneygreen's picks have drastically underperformed the market since the 1980s - AIG and BAC. Doesn't mean they aren't good investments now.

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#11) On January 14, 2013 at 4:58 PM, Bmayo32 (50.10) wrote:

valuemoney, I'll check that site out for sure!  I'm a huge fan of learning about new companies and broadening my knowledge base. 

Where to start?  Yes, Corning has underperformed the S & P Index since 1985......and 27 years is a long time even for the most patient of investors.  It's possible Corning was simply over-valued in 1985.  If you back up the comparison to 1978, Corning actually killed the Index!!

http://www.google.com/finance?q=glw&ei=xHT0ULCcG5KmlwOL7gE

If my link doesn't work, you can use www.google.com/finance and do the comparison yourself, GLW to .INX

I'll give you this, Corning lost a lot of money 2000-2003 ($3.25 per Share total loss).  But, 2004-current they've made money every single year.  And in total, they've earned $12.45 per Share (2004-current).  So, they've basically earned their entire share price since 2004.

Put another way, if Mr. Buffett had bought the company in 2004, he would have earned back his entire purchase price and would now be sitting with a "free" asset (company) that is earning around $2.5 Billion per year, with still growing EPS.  Even though the Stock Price is essentially flat since 2004, the earnings have kept flowing in.

Buffet has been known to buy companies on the operating table.......as he did with American Express during the Salad Oil Scandal of 1963.  I think Corning's share price (not the company itself) is on the operating table.  Between sluggish tv sales, the gov't accusation of price fixing on catalytic converters, weak Japanese yen, and owens cornings business being soft....post the housing-bubble; all this has really beaten up the share price.  But, it's worth repeating, THEY HAVE EARNED MONEY (and a lot of it) FOR THE LAST 9 YEARS STRAIGHT.....and Corning's projection is actually for growing EPS (although I'm always leery of future predictions.....in finance, and relationships too for that matter).

Sorry for the long-winded response.  I doubt I can win you over to my side.  But, on the plus-side; within the Stock Market, we don't all have to make money in the same manner.  And I wish you all the best! 

 

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#12) On January 16, 2013 at 10:21 AM, valuemoneygreen (84.65) wrote:

MegaShort you gave two extreme examples of the 80 companies I follow. 2 out of eighty is a VERY low percentage. I have explained the BAC investment in various comments I made..... as far as goes AIG is trading @ $30 dollars is WAS trading at over $900 dollars. It traded at 900 because it had earnings power and a good business model. Management made mistakes same goes for BAC. Over leverage was the main problem. They both had consistant earnings income and it didn't have -82% tax rates and 5% tax rates. Look at earnings from 1980 till 2000 on both of them. So MegaShort do you think GLW is a highly liking canidate to outperform the S&P over the next ten years? Answer that question for me. As for the business as a whole I am just saying I won't buy it at current prices. Would you?

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#13) On January 16, 2013 at 11:41 AM, Mega (99.95) wrote:

"So MegaShort do you think GLW is a highly liking canidate to outperform the S&P over the next ten years? Answer that question for me. As for the business as a whole I am just saying I won't buy it at current prices. Would you?"

Yes, I own shares of Corning and think it will significantly outperform the market over the next 10 years. Their technology and scale are competitive advantages which will help them continue to earn above average returns on capital. Also, I see minimal potential downside with their fortress balance sheet and low valuation.

Just like AIG's CDS meltdown, Corning's asbestos, silicone, and environmental exposure is in the past. If you take out the billions of dollars they have lost, their pro forma earnings would look better and their tax rates would be higher. Tax rates aren't going up right away, since they still have several billion in tax credits available.

Again I don't think there's anything wrong with investing in AIG. A mix of beaten-down "cigar butts" and higher quality long-term compounding companies seems to work for me.

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