Now that Apple is the largest public company in the world, and the most popular stock, the eagerness with which newsletter guys tout “secret” Apple suppliers is ramping up still more … impressive in itself, since the basic “buy Apple suppliers” pitch has been around and making money for subscription-sellers ever since Synaptics was pitched for their contribution of the “click wheel” to the original iPods.
And now it’s Ian Wyatt, in a teaser that many Gumshoe readers have been asking about that touts the “next iDevice” as the source of favorite Apple supplier’s next profit boom. He’s throwing this tease out there as he recruits members for Ian Wyatt’s $100K Portfolio, which is one of those “I’m putting my real money to work and you can follow my portfolio” services that most publishers offer (and for what it’s worth, this one is relatively inexpensive at $39 for the first year).
So what is he teasing? Well, let’s take you down the rabbit hole into the teaser to give you a taste of the pitch:
“Before his untimely death, Steve Jobs unveiled top-secret designs for a revolutionary new iDevice to interconnect ALL of Apple’s smart technology…
“Prototypes are believed to be in development for a late 2012 release–and there’s just ONE STOCK you need to own to capitalize on the crowning Apple-Jobs innovation….
“Those plans included a postmortem release that will seamlessly connect ALL of Apple’s existing smart technology with a single game-changing ‘Smart Hub’ device.
“And to the delight of consumers and investors alike, it will grace millions of homes and offices as soon as late-2012.
“When it comes to market, it will not only define a new category of telecommunications and bring smiles to the faces of millions — but also make some savvy investors very wealthy in the time it takes to say, ‘Think Different.’
“And if history is any indication, it wouldn’t surprise me in the least to see a million or more of the next revolutionary iDevice sold on launch day.
“But Apple and its shareholders won’t be the only winners…
“Because while I fully expect Apple component suppliers like Foxconn, Jabil Circuit Inc., and Qualcomm Inc. to profit immensely from the introduction of the next iDevice… they won’t be the names that we remember from the introduction of Apple latest game-changing technology.”
And then he gets into some more specific — and mouthwatering, for the money-grubbing investo-lusters among us — predictions for his pick:
“I’ve just identified the ONE AND ONLY TECH STOCK you need to capture outsized profits in the next 6-18 months.
“And I can’t think of a better or more direct way to play the ongoing Apple craze.
“That’s because right now, shares of this long-standing Apple supplier are not only heavily discounted, but show enormous growth potential leading up to the next iDevice launch.
“Which is why I fully expect investors to see a 50% return before year’s end.”
He backs up that prediction with some chatter about past big winners in the “Apple supplier” universe, like Zagg, Skyworks Solutions, and Qualcomm (and we could have added some other chipmakers to that list too, I’m sure), all companies that have seen their shares move up thanks, at least in part, to high-volume business from Apple.
So who is it?
Well, we get a few more clues to toss into the ol’ Thinkolator — the first is that it’s an old company, not a “newfangled breakthrough” …
“… the company that is so crucial to Apple’s next top-secret device is a seemingly-boring, American dividend-paying industrial giant that has remained on the bleeding edge of technology for the last 161 years.”
And they were instrumental in the creation of the first iPhone … and that their product will be used in much greater volume (100X more) in Apple’s next “iDevice” …
… and finally, a few more clues about the stock …
- Right now, they’re holding $5.8 billion in cash and short term investments.
- Shares are trading at 10-times EPS estimates and 6.5-times cash flow.
- Business was so good in 2011 they increased their dividend by 50% – and are now paying shareholders a dividend of $.30 annually. As an investor, that inspires confidence, but what’s even more inspiring is that…
- In the same year, management initiated a $1.5 billion share buyback. To me, this signals that insiders know something that the general public doesn’t.
Well, that’s plenty for us to toss into the ol’ Thinkolator — and the answers come out the other end, nice and shiny-like: this is Corning (GLW)
Yes, boring and dividend-paying, at least in the minds of many investors — Corning is one of the titans of US technology over the past century, with innovations that enabled the electric lightbulb, our high-speed internet, and other breakthroughs … particularly in glass and ceramics.
And yes, if you’re betting on the next iDevice using “100X” more of the proprietary material from this key supplier, then you’re thinking that Apple will be, as many expect, releasing a big-screen television (the iTV, or whatever they’ll call it) late this year … and that it will either use some of Corning’s higher-spec, higher cost glass (like the super-strong Gorilla Glass that they reportedly supply to the iPad and iPhone) or will rejuvenate the somewhat moribund widescreen TV business worldwide and help clear the glut of televisions and glass that has beset that particular market since the replacement cycle for tube TVs effectively ran its course in the developed world.
Because even if Apple sells a lot of TVs, it’s hard to make the argument that they’re going to add substantial incremental demand to the LCD glass market — or at least, substantial enough to really impact the pricing for suppliers like Corning. That’s because glass for all the TV makers is essentially the same — assuming, of course, that Apple doesn’t pay a premium to get the stronger Gorilla Glass for its TVs … and it’s hard to imagine why they would, since other TV makers have experimented with it and there doesn’t seem to be a need for it. After all, the point of Gorilla Glass is that it’s stronger and can withstand thousands of touches and swipes on a touchscreen device without scratching, which is certainly key … but no one wants a touchscreen TV, and no one asks which TV has stronger glass when they buy a new TV (even me — I just bought a new TV, and even with three little Gumshoes under eight in the house, all of whom are hell bent on destruction, it didn’t occur to me to look for a “more durable” TV … despite the sitcom scenes of people throwing their Wii remotes through the screen, regular TVs are plenty strong enough for even ebullient homes).
But, that said, if Apple can really ignite mass interest in TVs again, in a way that 3D televisions have not (I wasn’t interested in buying one of those, either — we lose the remote every week, what chance on earth do we have to keep track of special glasses?), then that increased volume of LCD glass demand would certainly help Corning.
I love Corning — it’s the kind of old, industrial tech company that changed the world and will probably do so again, and I love the long history of innovation, but it’s cheap for a reason. Corning is cheap because LCD glass for widescreen, flatscreen TVs became the lion’s share of their business in the last ten years, and, as prices inexorably pushed down and the replacement cycle brought HDTV to most of America and the developed world, the volume and margins have dried up. The industry has tried to ignite new upgrade cycles — with new OLED and LED models that are thinner and with better pictures, or with 3D models, for example — but it hasn’t had nearly the impact on volume that the big flatscreen/HD replacement wave had. After all, there are other glass makers as well, though only a few that compete with Corning on this scale, and they all ramped up capacity to make sure every American had access to a 50-inch TV for less than $1,000 — Corning’s margins are still admirable, with more efficient and higher tech processes than many producers, but they may be fighting a losing battle as high-volume LCD glass is being commoditized by competitive capacity.
For a company of their large size (Corning’s market cap is around $20 billion), Corning is unusually non-diversified in their offerings — the lion’s share of revenue comes from huge sheets of glass that they make for the TV manufacturers, just as in the first tech boom of the late 1990s their production of fiberoptic cable dominated the income statement. They do have lots of other businesses, from diesel engine filters to glass lab ware, but TVs are the biggie and fiberoptic cable is still number two.
So that’s why the company is so cheap — a forward PE of 9, a dividend of almost 2.5%, that sounds pretty appealing. But you’re buying a stock that analysts think will report lower earnings this year than last and then return to very tepid single-digit earnings growth. And Wall Street hates companies that aren’t growing, or even that might not grow. In my case, I sold Corning last Fall because I was looking at Corning and Apple (AAPL) side by side and saw that they were trading for similarly cheap valuations, but that Apple was growing far, far faster and would continue growing faster, which made owning GLW over AAPL seem foolish. Cheap is good, but “cheap and not growing” means it might stay cheap for a while.
So I can’t tell you whether or not Corning will get a big boost from the widely-expected iTV that might come out in the next year, but I can tell you that I’ll be surprised if enough Apple televisions are sold in the first few quarters to make a big difference for Corning … unless Apple uses some kind of premium-priced Corning glass for their sets, and not the “regular” LCD glass that’s in your TV and my TV and millions of other TVs that are sold every year.
And I can tell you that Ian Wyatt’s apparently urging you to buy GLW stock, as have many other newsletter pundits (it was a favorite of David Gardner’s late last year when he called it his “Ultimate End of America Play”, and the low valuation has tempted many in the past, including me).
But what I can tell you doesn’t matter so much, of course — it’s your money, so it’s what you think that counts — will Apple and their rumored TV set revive Corning’s LCD glass business and spark a faster earnings recovery than analysts expect, or will GLW remain cheap for a while longer? Let us know what you think with a comment below.
Disclosure: as noted above, I own shares of Apple (AAPL). I also have a buy order in for a few additional shares if it dips below my buy price either before or after tomorrow’s earnings release, but I will not otherwise trade in the stock or in the other stocks mentioned above for three days.