Considering Corning

 | Nov 18, 2011 | 12:30 PM EST
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I tend to stick to following smaller, sometimes more esoteric names. I find it's a much more interesting pond in which to fish in for value. But it is also limiting at times, not to mention volatile. So I will sometimes seek out bigger names; if they are cheap enough, I'll buy them. When I do buy these names, I often hold on to them for at least for a couple of years. I'm still sitting on an eBay (EBAY) position that I established in 2009. That might seem odd for a value investor, but not when you consider that the stock was trading for 9x earnings when I bought it.

One larger name that has me interested is Corning (GLW), which is an old-time company that is now best known for its specialty glass. It's hard to imagine now that this company was part of the tech bubble, and traded above $100 per share (split adjusted) in late 2000. Just two years later, after the proverbial bubble burst, Corning shares were trading in the $1.00 range.

Today's Corning is a different animal. While it is not immune to the economic pressures facing consumers -- given the use of its specialty glass products in everything from TVs to tablets -- there appears to be a lot of uncertainty already priced into the stock. Currently trading at 7x trailing earnings, 2012 consensus estimates put the stock's forward P/E ratio at about 8. For the third quarter, revenue grew nearly 30% to $2.075 billion, ahead of the $2.02 billion consensus estimate. Net income rose 3.3% t0 $811 million. While the net profit margin fell from 49% to 39% (I had to check those numbers twice; those are amazing margins), the company beat the $0.42 consensus earnings estimates by $0.06.

What really has grabbed my attention, though, is the fact that Corning recently raised its quarterly dividend by 50%, from $0.05 per share to $0.075. While that makes for a decent yield of 1.9%, the increase itself is a potentially powerful signal. Dividend increases signal confidence from management that the business is headed in the right direction. You can't fake dividend increases: If you raise the dividend one quarter, but have to decrease or eliminate it the next, investors will flee and your stock will get hammered.

One could argue that raising the dividend was actually an easy decision for Corning, given the company's $4.9 billion in cash and $1.5 billion in short-term investments, which represents more than $4 per share in cash and short-term investments. But I still see it as a positive, easy decision or not. I also like that this company has a good balance sheet, with just $2.3 billion in debt, an amount that is not staggering given the company's cash hoard. In addition, the capital-intensive nature of the businesses it runs is attractive. The stock also currently trades at just 1.14x tangible book value per share.

I'll expect some more volatility from this name, but I might have to make some room in the portfolio for another large-cap.

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