There are several companies that I own small positions in but I am waiting for a pullback to give me a chance to get loaded up on these names. The stocks are safe and cheap and their long-term business prospects are extremely exciting. Though these companies are out of favor at the moment, I think they have what it takes to be global growth leaders over the next decade. These are stocks I expect to be selling to momentum guys at many multiples of the current stock price at some point in the future.
I have a rule against falling in love with stocks, but it is very hard not to make an exception for Corning (GLW). This company's products are used in what will likely be some of the most exciting markets over the next decade. The company provides glass for flat-screen TV screens, computer monitors and handheld devices, including smartphones. This huge market will drive substantial growth while the economy recovers over the next few years. However, this division accounts for only 35% of the company's total revenue.
Corning also manufactures optical fiber and cable to the global telecommunications industry. Even in a weak economy, the global demand for greater bandwidth is insatiable, and Corning provides the products that expand bandwidth. Why take a chance buying Chinese stocks when you can own Corning and benefit from the demand for higher bandwidth and greater broadband penetration in the world's largest country? It is no secret that I am not a tech guy, but even I can understand the escalating demand for broadband access and increased bandwidth will be with us for quite some time to come. As a global leader in the space, Corning will get its share of that growth.
In its environmental division, the company makes glass for filters such as catalytic converters. Regulations in Europe, Japan and the U.S. make these types of filters mandatory for all newly manufactured autos and trucks. They also make ceramic supports that are used to scrub the air in refineries, power plants, chemical plants and other pollution-emitting fixed locations. Increasing pollution control regulations around the globe will help drive sales and earnings growth for this division of the company.
Products made for the life sciences industry (for a wide range of devices and tools used in biotechnology research and the production of bio products) account for 8% of Corning's revenue. Although it's one of the company's smallest divisions, the growth potential is obvious, as more research is done every day for biotech answers to worldwide health and even energy problems.
Every segment of Corning's business has exciting growth prospects for the next decade but the stock has been weak because the company missed estimates and had a few soft quarters where business was below expectations. As a result of Wall Street's short-term attitude and forecasting difficulties, the stock is cheap. Right now, Corning shares trade at about 90% of tangible book value -- even after a recent bounce. The company has more than $6 billion in cash and, after subtracting debt, it still has more than $3 billion of net cash. Management is using the cash to buy back stock and they also recently hiked the dividend by 20%. The company should be able to increase free cash flow and earnings rapidly as the economy recovers and consumer demand for its glass products increases. A stronger global economy will also focus more attention on environmental concerns, which will help that division grow sales and profits.
The stock is safe and cheap and the company has almost unlimited growth prospects across its major business lines. Buy some shares now and scale into a larger position on market declines. This stock is also a great candidate for backing into by selling the puts on a cash-secured basis. Look at the January $12.50 contract to potentially create a long position below the current market price. Please note that although I like everything about this company and the stock price, I am still going to keep my position small and slowly scale into the stock, allowing Mr. Market's mood swings to get me a better average cost.