“Tailpipe Riches: Car of the Future” Outstanding Investments

By Travis Johnson, Stock Gumshoe, June 25, 2008

It’s been a little while since I looked at something from Outstanding Investments, so this one caught my eye. It was buried in a long teaser email that was all about Saudi Arabia lying about their oil reserves, and the various solutions to the oil crisis … but about halfway down, Byron King started teasing us about a company that will be helping to enable the “car of the future.”

Part of the reason to pay close attention, by the way, is the recent track record of Outstanding Investments — it has been the strongest performer in the Hulbert database for the last five years, thanks in part to a focus on commodity-related stocks, so although it’s had a few different advisors and past performance is no indicator of future results, I do like to keep an eye on what they’re doing.

King goes through the various options for solving the problem of making cars more efficient and green, essentially saying that the Prius is great but is not a mass solution because of expense and weak highway performance, and that natural gas or hydrogen will not be taking over immediately, either. Hard to argue with him in the short term, since natural gas seems largely destined for fleet use and there is no infrastructure to speak of for hydrogen (though a hydrogen fuel cell car comes along every now and then, like Honda’s recent foray).

He focuses on the gunk that comes out of the engine … and says that the key to the future is diesel.

The logic is interesting — you can make diesel out of coal or other oils (ie, biodiesel), so there is some potential for weaning from crude oil, and it is more efficient than gasoline in general, and King argues that the next breakthrough will be diesel combined with hybrid technologies.

But it’s what comes out the tailpipe that has historically clouded our perceptions of diesel, at least in the U.S.

“Emissions are the key to profits … the way to profit from the diesel revolution is to buy the company that’s going to remove the last
obstacle that stands in the way of diesel: pollutants.”

He throws in some jibber jabber about Europe and their widespread adoption of diesel in passenger cars (true) because of its increased efficiencey (also true, as far as I can tell).

But he says they’re also looking for the next wave — Europe and, a bit behind, the US have mandated stricter standards for diesel to create a cleaner burning fuel, and big engine makers have really benefited from a big upgrade cycle as heavy truck operators upgrade their fleets, which folks investing in Cummins (for example) have really enjoyed … but cleaner diesel still ain’t “clean.”

“You see, the Europeans still haven’t been able to remove the last bit of filth from diesel exhaust. They’ve just put up with it for the sake of fuel economy and lower carbon emissions.

“Whoever comes up with the best diesel tailpipe solution stands to make a killing. And a high-tech American company has done exactly that. It’s come up with a diesel filter that’s far superior to what the Europeans now have.”

Byron goes on to tell us that “diesel tailpipes” will be a billion dollar market by 2010. And that this company “will be on every front page in the country.”

So what is it?

“This company is a technology leader that created one of the most important inventions of the ’90s telecom boom — but I’m not talking about Microsoft or Intel or any of the obvious choices. The company I have in mind keeps a lower profile.

“… My crystal ball says its technology is going to wind up in 200 million vehicles. I’ll tell you all about the stock in a FREE special investment report called Tailpipe Riches: The Race to Build the Car of the Future.”

So what is this company?

Well, I’ve already seen them on the front pages of newspapers dozens of times, but that’s because I grew up just down the road from their headquarters in upstate NY — this is …

Corning (GLW)

Do love the old GLW ticker — from the days when they were a simple glassworks, with an army of glass blowers.

Corning’s contribution to the tech revolution of hte 1990s was, of course, fiber-optic cable — the inventor of this tiny strand of spun glass worked for Corning back when he came up with the stuff in the 1970s. And they both gloried in that and suffered from it, as the massive overbuilding of fiber networks in the 1990s gave them a true boom and bust experience up in Corning, NY.

And this was no garden variety boom-bust — if you happened to buy GLW at it’s height, around $110, you could have been one of those poor souls who got shaken out and sold near the lows just two years later, right around $1.50. That’s a loss of greater than 98% … which scared folks away from Corning for probably longer than they should have been scared. Since then, the shares bounced rather quickly into the $10 range, then slowly and gradually doubled to their current range, in the mid-$20s.

Corning is now primarily looked at, at least by retail investors, as an LCD play — they’re a dominant maker of the special large format glass screens used in everyone’s favorite new HDTVs, and they say that business is still going pretty well, though fears for the consumer have some a bit worried.

This business that Byron King is teasing us about has been a relatively small part of Corning, but might indeed grow much larger if he’s right. They make ceramic substrates for diesel catalytic converters and filters, apparently (I don’t know if those are the correct technical terms), and have been in similar businesses for many years — they also invented the basic substrate that most standard catalytic converters have used for decades.

Diesel vehicle emissions are certainly a growth area for Corning, though I couldn’t tell you what that’s going to do for Corning’s growth … or whether diesel will really end up being the main solution, with or without new filters. I suspect this will be a good business for them, but I would be surprised if the returns were so dramatic that the shares double by January or anything exciting like that (King didn’t specifically predict that, to be fair).

That’s largely because Corning is a huge company, with a $40 billion market cap and annual sales of about $6 billion and growing. I like the company, and if you want a great, innovative American company with ties to heavy industry, healthcare, technology and other areas where there is potentially interesting growth, and a culture that has nurtured many breakthrough inventions, I can’t argue against buying shares in this one.

The only thing that gives me some pause is that Corning, though it is a large and diverse business, has tended to ride those boom and bust waves in some big product areas on occasion, and LCDs might, I suppose, be another one of those if margins sink with competition, or sales drop.

So far, Corning is indicating that won’t happen — their shares just jumped a couple percent because they released an optimistic forecast for LCD sales. So you do get the flip side of that, too, in share price outperformance over shorter time frames — just look at another innovative company that has its fingers in pies across the product spectrum, 3M: the more conservative MMM has dramatically lagged GLW and their big bets on a few products in the last five years. I like 3M, too, but they seem to be a bandleader in search of a hit lately, while GLW is playing the chart-toppers over and over and hoping not to lose the tune. MMM’s chart for ten years has been a slow and steady climb, GLW’s has been Everest followed by Death Valley, followed by Mount McKinley. Nothing wrong with that, just know what you might be getting into — it takes all kinds, and GLW and MMM are given roughly similar valuations by the market, and are of similar size (though the comparison may not be fair for a multitude of other reasons). Over ten years, they’ve both more or less doubled — but it was a lot harder to pick good entry points in GLW, while time and a larger dividend have made almost any shares of MMM bought during that time work for most investors. If you’re trading and like shorter term profit opportunities, however, GLW has certainly been dramatically more volatile, so saddle up and enjoy.

So where were we, before that probably largely pointless comparison? Oh, right — diesel filters. If you want to learn about Corning’s work in this area, there’s a good summary article from the Wall Street Journal from back in March, available here as a pdf.

And just in case I confused things too much by hauling that comparison to MMM out of thin air, this might be the time to note that yes, just as in all areas of life, there is competition — 3M makes ceramic diesel particulate filters, too, as, I’m sure, do many others, though it’s been Corning that has been lauded for breakthroughs in this area of late.

The shares seem reasonably priced, at a small discount to the greater market. Not much debt. A tiny dividend. Nothing to sneeze at, just be aware that Byron King’s projected billion dollars in diesel tailpipe business (even assuming that GLW dominates that market) isn’t necessarily going to make Corning shareholders wealthy overnight. I’d probably be happy to own GLW (or MMM, for that matter), but I don’t right now.

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35 Comments on "“Tailpipe Riches: Car of the Future” Outstanding Investments"

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Woman with Portfolio
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0
June 25, 2008 6:18 pm

There are several reasons to own Corning, and I seldom see folks mention it as a silicon play, since it owns 50% of Dow Corning, which has a solar division. Now that the implant scare has died down, Dow Corning is not radioactive. (I hope.)

Family of Corning
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0
June 26, 2008 9:35 am
My uncle was one of the scientists at Corning who developed ceramics and glass for natural gas pipelines as well as Corelleware and Revereware in the 50’s to 70’s. I have family who still work for Corning and I haven’t heard much from them lately about the company’s prospects. They were doing restructuring/reductions last I paid attention. Any news on how that is helping them? Would love to own them again, but still a bit timid (one that bought in the 20’s and watched it hit the 100’s, then drop like a rock – sold in the 40’s . .… Read more »
Elissa Stein
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Elissa Stein
June 26, 2008 9:40 am

Gumshoe, this is an old ad that’s been recycled–I think they started recommending it in 2006 or early 2007. Jim Cramer has also stated that he thinks the Corning diesel filters/green technologies can eventually be as big as the glass component of their business- and projects the real growth will be around 2010 and beyond. I do purchase options on GLW once in awhile. It is not particularly volatile, but they have been modest winners.
GLW’s factories have been running at full capacity for the TV glass for some time, so they can’t easily increase production.

Jeff Uscher
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Jeff Uscher
June 26, 2008 9:43 am
There are two Japanese companies for which diesel particulate filters (DPF) are significant parts of their business, Ibiden (4061:JP) and NGK Spark Plug (5334:JP). These are both traded on the Tokyo Stock Exchange. Technologically, Ibiden has the better product because it can operate at a higher temperature but NGK Spark’s DPF is cheaper to manufacture. Both companies (along with GLW) ship and manufacture their DPFs in Europe. The key point here is that, in the US, the EPA mandated that all diesel be refined to Ultra-Low Sulphur standards. Now that ULSD is available at any diesel pump in the US,… Read more »
Gravity Switch
Admin
11
June 26, 2008 10:19 am

Since I wrote this yesterday afternoon, there have been some interesting articles about GLW investors — the Cabot Letter recommended a sale of their GLW position:
http://tinyurl.com/5rcof9

And Ron Muhlenkamp bought more:
http://tinyurl.com/5mbq2q

There are at least two perspectives on everything, and, of course, two sides to every trade.

tzg
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tzg
June 26, 2008 10:59 am

Europeans haven’t preferred diesel over gasoline because of efficiency reasons but because it’s cheaper. Diesel engines do get better mileage, but the real reason for their popularity is that diesel fuel has always been taxed at a far lower rate than gas in most European countries. One exception is Switzerland where diesel costs more, so diesel cars are in a very definite minority there although sales have been picking up lately.

Mark
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Mark
June 26, 2008 11:08 am

Hey, that Wall St.J. PDF articule on Corning DPF
doesn’t pop up. Headsup

Al
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Al
June 26, 2008 11:30 am

I seem to always be interested in reading not only Gumshoe’s articles but also the various responses. It is a good way to learn what is going on in the investment world. Thank you to all.

SageNot
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SageNot
June 26, 2008 11:43 am
Justice Litle was the editor of OI back when GLW was selected on 12/12/05, but it’s nearly flat-lined since & broken down sharply with the rest of the market recently. I agree with re-recommending a portfolio stock when their fundamentals take a turn for the better, the “hold” is correct for now, but I’d buy it once they reverse this downturn with both hands. Our son spent two months in Europe last summer, & the Renault they rented was a bio-diesel that gave them great MPG. BD is the accepted fuel for cars in most of Europe, why our US… Read more »
EYOUNG
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EYOUNG
June 26, 2008 2:01 pm

In reference the economy of diesel: I could seriously be in error here, but I am really confused where the economy comes in! Is the gas mileage improvement worth the dollar / gallon more than regular unleaded???
IMHO, Natural gas would be a greater economy, IF we could get some more stations for it,,, Seems the conversion from unleaded to NG is not that severe!
Comments welcome!

sequential
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sequential
June 26, 2008 2:59 pm

Please check out Hydro-Assist fuelcell kit I dont know whether they have perfected it yet but apparently for about $1500 you can have it fitted to your vehicle and save a bundle on fuel they are also
working on a catalectic converter to save you even more its called PICC SYSTEM comments please

sniper
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sniper
June 26, 2008 7:11 pm

Cramer was also a big fan of Sears Holdings (SHLD)
and was always touting it even when it was at $170.
I take Cramer with with a bit of salt. As SG says, ‘do your own research’. Good investing.

Big Mo
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Big Mo
June 26, 2008 9:05 pm
Gumshoe, just a side note. You mention Corning’s huge success with fiber optic cable. True — but it’s a product that almost went nowhere. They tried unsuccessfully for 10 years to market it. The connectors were very expensive (still are to an extent) and took nearly 15 minutes apiece to put on. You needed intense heat, a special kit to polish the fiber end, along with special training, etc. MCI really saved the fiber optic industry when they placed huge orders and made special arrangements with the railroads to run fiber along the same paths as the tracks. So, to… Read more »
Mark
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Mark
June 28, 2008 11:32 am

Just a quick point about the Prius, while certainly not the end all answer to the energy crisis, I do get better than 50 mpg on the highway doing 70mph, there aren’t to many cars out there that can do that if any.

John Sloan
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June 28, 2008 2:55 pm
HI Travis I too have subscribed to OI for years and had some successes. I bought 100 of Corning some time in 06 and it is up a wonderful $400 or so to date – but went up and down several times in between. In my July OI it shows as a buy. They claim a 29% increase since Dec 05. I think it is Addison Wiggin who pushes all these ultra-hype teasers out. The Corning one has recycled many times. But my favorite is the ‘secret China Lake’ teaser about hydrothermal that OI and King push repeatedly. Everyone knows… Read more »
trevor peasland
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trevor peasland
June 29, 2008 5:25 pm

I’m with Mark.
I get anywhere from 60-70 mpg (Cdn.) from my Prius. Interestingly, Toyota suggests better mileage in city driving than on the highway. I only get 50-60 mpg (Cdn.) in town. Just filled the tank ($43) after going 720 km.

Elissa Stein
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Elissa Stein
July 1, 2008 12:19 pm

Corning’s website shows that some of its green technology customers include
Delphi, Navistar,Chrysler,Detroit Diesel,Hyundai-Kia and VW. They did expand their factory in China, too.

oneinamill
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oneinamill
July 16, 2008 8:25 pm
The reason Deisel is so high is becuse(in my opinion) is because we got away from shipping by rail and started shipping by truck. I live 20 miles from Corning and since building their Diesel plan they have added on almost continuously. one of the reasons for their downfall was trying to expand the fiberoptics business before perfecting it. the CEO at the time was not a Houghton family member and was dismissed shortly after. they now have a new medical product that has bee touted as a major breakthrough at present they have the patent. enjoy reading your e-mails… Read more »
Rich
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Rich
July 25, 2008 6:15 pm
Spot on. MMM looks better than GLW right now, silicon, silicone or not. Conglomerates, not withstanding GE and TDY, generally trade at lower multiples. Like TDY right now maybe to 100 from 65. Re automotive applications, VLKAY up 45% this year, possibly anticipating Fall 2008 US reintroduction of the clean 45 mpg VW TDI which runs on biodiesel. Currently driving GEO Metro getting 54 mpg. Concerned about replacing batteries in Prius. WPT.TO, 14, doing well with heavy duty Diesel to Compressed Gas conversions. Jeffries and Lazard just raised 85 million for them to expand, about to trade on OTC with… Read more »
StephenC
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StephenC
February 11, 2011 5:08 am

Great article. A nice read this weekend eh.

Gravity Switch
Admin
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June 26, 2008 8:59 am
Good point, WWP, I find it interesting that such a large company with multiple product lines and massive R&D operations keeps being identified by individual investors as a “one product” company and moving based on that product. Part of it is that they do make big bets on specific products, like LCDs or fiber-optic cable, but part of it seems to be psychological, investors grabbing on to some way to focus their attention on the company. I remember visiting the Corning glassworks museum as a youngster — pretty cool stuff, it’s amazing how important glass and ceramics are in areas… Read more »
Gravity Switch
Admin
11
June 26, 2008 10:08 am

No big surprise there, eh? Recycling is not just good for the environment, it’s good business! Yep, I’ve heard a lot of chatter from Cramer about Corning over the last couple years, too, first for the LCD glass and now for the diesel filters.

Gravity Switch
Admin
11
June 26, 2008 10:12 am
Good points, Jeff … now we’ll have to wait and see if people will actually buy them, Americans have stereotyped diesel engines as dirty, smelly, and difficult (no longer true, or at least not to the extent it was 10 or 20 years ago) to the point that it’s going to take some massive marketing or a dramatic cost advantage to help them really get established here, but certainly if it’s going to happen, now’s the time. I almost bought a diesel last time I got a new car, but couldn’t get the one I wanted and there wasn’t enough… Read more »
Bonnie Cooper
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Bonnie Cooper
June 26, 2008 10:35 am

I subscribe to Byron King’s Outstanding Investments newsletter. The July issue is out…he has GLW as a hold…not a buy. It has been in the portfolio since 12/02/05. Nothing new here. I don’t knpow why he is teasing it to sell another subscription, but NOT recommending it as a buy…hmmmnnn

Gravity Switch
Admin
11
June 26, 2008 10:40 am

Interesting, thanks — often the editors probably don’t know what the marketers are doing, this email has been around the block a few times. I wonder if he’ll like GLW any better today, dipping below $25.

Gravity Switch
Admin
11
June 26, 2008 11:40 am

Sorry — it’s fixed now. Thanks for the note.

larry Hurst
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larry Hurst
June 26, 2008 1:05 pm
I am involved in growing feed stock(non edible) for biodiesel production. Jatropha oil to be exact, a wonderful so called weed(actually a tree) that grows in Indonesia. But our focus is shifting from making Biodiesel with our patented microwave technology to Direct Conversion. We have(and other companies) succeeded in making diesel, gasoline, and jet fuel from vegetable oils. We are planting thousands of hectares of this stuff and it will change the way we look at oil or even diesel particulates. Its very clean. Alas even if we plant the 2 million hectares over a ten year span it will… Read more »
SageNot
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SageNot
June 26, 2008 1:50 pm

No need to apologize Larry, I’m sure that many investments in these bio-diesel fuels are coming, & thanks for mentioning the ones coming out of Indonesia. We need the entire world getting into this serious lacking of fuel for our cars. We have zero local transportation in Melbourne, Fla, so you either drive or walk. Buses are rarer than a bull mrkt, not even one trolley or above ground rail for commuters & we are only 40 miles+ east of Orlando, Fla.

MonV
Guest
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MonV
June 26, 2008 3:05 pm

Why is diesel so expensive here? As mentioned above, it is cheaper than gasoline in Europe except in Switzerland!

Gravity Switch
Admin
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June 26, 2008 3:19 pm

Mostly taxes, I think — government policy tends to push diesel in Europe by taxing it less than gasoline.

Gravity Switch
Admin
11
June 26, 2008 3:20 pm

Thanks — I guess I should have specified that “European Governments have preferred diesel,” not necessarily consumers, though one follows the other, as you note, when tax policy is behind it.

Chas
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Chas
June 29, 2008 4:38 am

Diesel now is about 10p / litre more expensive than gasoline in UK. People in US are always shocked to learn that we pay $11 for a gallon of unleaded gasoline – you’re lucky there with low taxes.

Gravity Switch
Admin
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June 27, 2008 9:27 am

Thanks Mo — I’m always impressed at how many knowledgeable folks are reading here, appreciate the extra info.

Gravity Switch
Admin
11
June 27, 2008 9:29 am

Very wise. I hope everyone takes me with a bit of salt, too. To taste, of course.

Gravity Switch
Admin
11
June 28, 2008 12:33 pm

Not bad! I’m afraid my wagon full of children couldn’t do that downhill with a tailwind.

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