Value Stocks Not for Risk-Averse Investors: Corning Incorporated (GLW), TE Connectivity Ltd. (TEL)

While not for the risk-averse, glass makers are an ideal way to diversify in the tech market. Their products can be found in smartphones, tablets, LCDs–virtually any type of product with an electronic screen display. Below, I review the value potential of two leading producers in the market.

Corning Incorporated (NYSE:GLW)

In my view, the market doesn’t give Corning enough attention. This glass producer’s products may very well be found in the screen right in front of you. While the company sees moderate price declines in LCD glass, it expects to still maintain its leading market share. Cost declines leveled in the fourth quarter of 2012, and Gorilla Glass is now a part of over 1 billion products worldwide. And on the company’s bottom-line, expectations have improved.

While I began this article with essentially mentioning that Corning Incorporated (NYSE:GLW) was “underrated” by market commentators, I must concede that I think Gorilla Glass’s value has been well articulated at this point. What I am therefore really optimistic about is Willow Glass. This form of glass is flexible, and there is no serious competitor after Samsung showed signs of pulling out. Given how technical product descriptions have become, it’s easy to skip over the preceding sentence. The idea of flexible glass, in my view, opens up an endless amount of possibilities. For years, electronic producers have been tied down to the flat-screen device. It was recently speculated that Apple’s rumored iWatch will contain Willow Glass.

In the fourth quarter, LCD glass volumes rose sequentially in the high single digits although pricing headwinds were greater than anticipated. There is still significant uncertainty in inventories and tech demand. Accordingly, Corning Incorporated (NYSE:GLW)’s management opted not to increase volumes of LCD material.

TE Connectivity Ltd. (NYSE:TEL)

TE Connectivity Ltd. (NYSE:TEL) has risen around 36% from its 52-week low and is now at around a 52-week high. It trades at a respective 15 times and 12.1 times past and forward earnings. Analysts forecast 10.1% annual EPS growth over the next 5 years. Assuming expectations are met, 2016 EPS will come out to $4.66. At a multiple of 15, this translates to a future stock value of $69.90. This would provide 16.6% annual average returns when you factor in dividend distributions.

Clearly, the stock is undervalued. However, as is common with value stocks, investors will face significant volatility. The beta on the stock is 2, which is particularly concerning the sensitivity of the company’s bottom line (profit margins are only 9.1%). However, top analysts believe that investors will be rewarded for taking on the risk. At around the start of 2013, RBC Capital Markets came out with an “outperform” rating and upped their price target. UBS soon followed with a “buy” rating. The consensus rating is a 1.9 out of 5 where “1” is a “buy.”

Fortunately, the stock is also creating value as it grows. This is indicated by its 11.3% return on invested capital, which is more than 100 bps greater than the industry average. Despite this, the stock is trading at a discount PE multiple of 15 versus the 19.6 industry average.

Closing thoughts & stock fundamentals

TE Connectivity Ltd. (NYSE:TEL) and Corning Incorporated (NYSE:GLW) are both cheap in light of rising demand from electronic producers. Corning also has a very strong balance sheet at a current ratio of 5 and little leverage at a debt-to-equity ratio of just under 0.2. With a beta of 1.45, the stock has a strong likelihood of closing its value gap quickly.

To hedge against downside, I also encourage investors to consider other electronic producers, like Samsung. This company has the greatest stability by virtue of its size and $220 billion market cap. It provides wide exposure to glass making and more direct electronic devices, so it is a good way to bet on the industry without running the risk that the entire investment will just “blow up.”

The article Value Stocks Not for Risk-Averse Investors originally appeared on Fool.com and is written by David Gould.

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