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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


October 14th 2011 Corning
NYSE Symbol: GLW
Industry: Glass maker
Price as of 10/14: $13.71

What a difference a week makes. Since the lows back on Tuesday October 4th, the Dow has risen 1000 points, but the real winner is the Nasdaq up 15% thanks to the techs. IBM made a new all time high this week. The chips are performing great. Intel is just under its' 52 week high. Texas Instruments has performed great every since they preannounced lower earnings last month. Apple keeps performing great as their competitors flounder. Google jumped 6% following better than expected earnings Thursday night, so at least one sector is performing well. If only we could get the financials to rally. This week we'll feature the sector that's working the best, tech. A number of techs still look attractive even with the run up. As mentioned, Intel is trading just under its' 52 week high, yet still provides a dividend yield of 3.7%. The company goes ex-dividend November 3rd and reports earnings next week. Cisco System has shown some life of late trading just under a technical break out level of $17.50 a share. Microsoft is perking up, yielding 3%, but this week we'll highlight a favorite featured stock, Corning. Corning provides a variety of glass related products for flat screen TVs, touch screens like the ipad and iphone. Plus Corning still has the fiber optic and carburetor businesses. But the stock is down 40% from the first quarter highs due to worries of slowing glass sales and inventory builds. However recent insider buying, a hike in the dividend, and a new share buyback plan indicates the long term fundamentals are still intact for Corning. Last week, an analyst reiterated a buy rating on the stock implying the same thing that any inventory concerns should be short term. Corning doesn't report until October 26th, so conservative investors may want to wait to see earnings, but long term the stock is attractively priced trading right at its' book value, in a sector that should lead any fourth quarter rally.

Even though Corning provides Apple with glass for all their popular products, the stocks is down significantly from the first quarter highs. Whenever a stock corrects like this, its' always nice to see management step up and buy the stock. A couple of weeks ago, Vice Chairman and CFO, James Flaws bought a million dollars worth of stock at modestly higher prices. That's always a good sign. Then last week, the company hiked their dividend 50%, bumping the yield up to 2.2% and also announced a $1.5 billion share buyback plan. If you're looking for yield, obviously there are better yields out there, but the fact Corning is willing to increase the dividend and use some of their cash for a buyback plan, coupled with the insider buying is a strong indication that Corning is comfortable with their fundamentals and business prospects. The analyst that upgraded the stock maintains a price target of $20 a share which translates into a 50% return from current levels. That would make up for the modest 2.2% yield. The company will go ex-dividend on November 14th.

When Corning reports on October 26th, the earnings will probably not be spectacular. In fact, the company may have to guide earnings lower for the fourth quarter, but the recent stock price seems to be pricing in a lot of the bad news. Currently, the stock trades for just 7.4 times earnings, 6.9 times 2012 earnings, 2.4 times sales, and as mentioned, trades right at the book value. Even if the company lowers earnings estimates, the stock is pricing in a lot of bad news. In fact, the stock is trading down from when we last recommended it back in August of 2009 even though earnings are up dramatically since then.

Back in the tech bubble, Corning had too little cash and too much debt when business slowed. Now the company has over $6 billion in cash and just $2.2 billion in debt and continues to generate strong cash flow even though business may have slowed. The recent economic data and the rebound in the averages indicate things don't seem to be as bad as initially feared. For long term investors looking for tech exposure providing a dividend with good growth prospects, Corning is one stock to consider.