If you are interested in betting on the tech sector as a whole, go after the suppliers. These companies indirectly meet end consumers of diverse industries, so they are likely to attract tech trends overall. Therefore, it makes sense to buy the beaten down stocks that can "ride the tide" of an accelerating tech market. Below, I review one stock that has struggled to gain back value, Corning Incorporated (NYSE:GLW), and another competitor.
Why Corning Is a "Buy"
When everyone thought that the country's leading manufacturer of glass and ceramics was dead in the water, Corning managed to pull a rabbit out of the hat: It increased revenue guidance before their conference call. And LCD--once a source of investor anxiety--has seen sales spike in recent years, as evidenced by the return of 4-6% sequential growth. The prices of LCDs were slowly falling, but this really started to moderate through 4Q12. And we can't forget that Gorilla Glass, Corning’s alkali-aluminosilicate sheet trademark, is now present in more than 1 billion products and is nearing the $1 billion revenue mark. Gorilla Glass is a thin, damage-resistant glass that is commonly applied to tablets, HDTVs, and smartphones. The rumor is that it first started to be mass produced with the first iPhone released in 2007.
While Corning’s other products and business are slowing down in sales, Gorilla Glass and LCD glass products are offsetting. A 5% sequential growth is expected for speciality materials. Fortunately, the company has another catalyst in Willow Glass, a flexible 100-micron thick piece of glass that can be used in OLEDs and LCDs. The benefit of being flexible is that shape is no longer a limiting factor in design. That's right, this breakthrough could result in even spherical-shaped technology if anyone wanted it. Samsung’s recent announcement of their OLED display, a flexible display, had no update on when it would be released, so Corning’s Willow Glass could end up being the selected material. Creating an early-mover advantage in technology supplies is critical, as evidenced by Corning's first successes.
With that said, there are risks. The company’s profits margins are getting unstable, and they ruled out a decision to leave LCD material production constant. They are now turning to macro factors. As it seems they are getting weaker, in order to stay in the market race, they are now considering lowering their product prices to stay in place.
TE Connectivity Ltd. (NYSE:TEL) : Challenges & Strengths
This firm is known for supplying touch screen technology, and it has a particularly strong catalyst from Microsoft Corporation (NASDAQ:MSFT)'s new focus. While Windows 8 sales have been relatively weak, the company's innovation is not to be quickly dismissed. Microsoft has been producing Windows 8 desktop PCs with touch screen technology. Just like 3D films caught on after years of public disinterest, I believe the same will be true for touchscreen PCs. Ultimately, other tech firms are likely to piggy back off of Microsoft and make this technology a standard household item. Yet, over the last 12 months, since touchscreen PC production started to accelerate, TE connectivity underperformed the market by 290 basis points.