Few companies can transform themselves from an old-line, houseware manufacturer into a cutting-edge player in the telecommunications sector. And rarely does the market deeply discount the stock price of a high-quality, high-tech stock because it sees its core business as becoming commoditized.

The way I see it, this is a perfect storm for smart value investors.

#-ad_banner-#Corning Inc. (NYSE: GLW) is that perfect storm right now, and I’ll tell you why the time is right for adding this stock to your portfolio.

For decades, millions of Americans made millions of casseroles in Corning’s durable, high-quality glass bakeware. But as the technology and telecom wildfires burned across the nation in the late 1990s, the company underwent a profitable metamorphosis.

As telecom companies built more broadband infrastructure due to skyrocketing demand, Corning was there to provide thousands of miles of fiber optic cables, which are made of pure glass that are as wide as human hair. As cash rolled in, the stock price zoomed to near triple-digit territory.

That is, until the tech-stock bubble burst.

And by September 2002, Corning’s share price had tumbled to barely above a buck.



Looking through the glass at growth…
Now, 10 years later, we can easily say the company has entered a new, glorious phase.

If you reach in your pocket and pull out your smartphone, or if you’re reading this on a tablet computer, then you’re holding the key to Corning’s current and future success: Gorilla Glass. Used primarily in consumer-electronic devices such as mobile phones, portable media players and displays, Gorilla Glass is an alkali-aluminosillicate sheet glass that is designed to be thin, lightweight and damage-resistant.

How important is Gorilla Glass to Corning’s business? Last year, Gorilla Glass generated $710 million in sales, which represents nearly 9% of the company’s total revenue. It’s clear Corning has a winning product, as long as demand for smartphones, tablet computers and high-definition TVs remains robust.

In all, Corning expects its worldwide glass volume for 2012 to reach 3.6 billion square feet,  a 12.5% increase compared with 2011. So, despite the economic uncertainty, the company plans to forge ahead and projects capital expenditures for 2012 to come in at $1.8 billion, most of which will focus on the company’s higher-margin products like Gorilla Glass. While $1.8 billion seems like quite a commitment, it’s not much of a stretch for Corning. The company finished 2011 with $5.82 billion in cash on the balance sheet and $2.36 billion in long-term debt against a huge market capitalization of $20.5 billion. This comes out to a very comfortable long-term debt to capitalization ratio of barely 10.4%.

The company’s income statement is just as exciting. In its fourth-quarter earnings report, Corning beat analyst expectations by a penny, coming in at $0.33 per share on pro forma revenue of $1.83 billion. But revenue grew a dramatic 19% year-over-year to $7.89 billion. Considering the challenging global economy, still-skeptical consumers, and a saturated consumer-electronics market, these are impressive numbers.

Risks to Consider: Corning has already voiced caution for 2012 despite its strong 2011 performance and the engine pressure driving its core competency. The company expects lower pricing for LCD (liquid crystal diode) glass, because the environment for this particular product has become extremely competitive. Luckily, Corning can combat this obstacle thanks to its strong balance sheet and positive cash flow. Other risk factors include the usual macro suspects: skittish consumers, global economic crisis and slowdown, and a lack of innovation and creativity at the device manufacturer level.

Action to Take –> At close to $13 per share, Corning trades with a forward price-to-earnings (P/E) ratio of about 9 with a 2.3% dividend yield. Even better, it also trades at 0.95 times the company’s tangible book value. From my vantage, this stock possesses all of the qualities of a classic value stock: low P/E ratio, low price-to-book value, solid earnings, a strong franchise, a visible dividend, good cash flow, low debt and a large cash position.

Based on these factors, a 12-month price target of $17 makes sense. Figuring in the dividend, that’s a potential total return of more than 30%.