OT-GLW: Mitch, Thanks for your input. I think there may be some good comparisons one could make between the fiber optic business and the semiconductor business. A long time ago one could have argued that an industry where the product (chips) gets twice as good (fast) for the same cost every 18 months or so (Moore's Law) is an area to avoid. In fiber optics you have the issue of splitting the light into more and more wavelengths, which allows existing fiber to carry much more data. In both cases, you have an extremely competitive and rapidly advancing industry. Fiber optics may end up being as good an area for investment now as chips were about 10 years ago, I hope so, but I am just guessing about this. It is certainly very hard to figure out, much like the semiconductor industry was, and still is.
In addition to the potential "last-mile" sales for GLW in the USA, countries like China are purchasing a lot of fiber for their long-distance networks. Again, the big question I am raising is whether or not GLW is a screaming buy now. If the growth rate really picks up going forward, then it certainly is, since the valuation is low now (P/S, P/B, & PEG). Two other positives are that insiders have been buying recently, and the share price has not rebounded that much yet off the low relative to most other techs, despite being down much further from the high than the average tech stock. Also, FWIW, the CEO recently (March 20 - I will post article below) said the decline in the share price was "Nuts", given their growth prospects and all. It was trading at about 24 then.
I am still thinking long and hard about this one, and wish I knew the answer as to whether or not it is a good buy here. I am guessing the answer is yes, but even if that is true, I don't know how long it will be before the orders pick up for the company. There is the argument that fiber optics will take longer to recover than semi's, which is valid I think. Having said that, I recall buying AMAT back in mid 1996 when an analyst proclaimed the stock was "dead money for a year" - it went up about four times in the next year after that. When everyone agrees it is time to buy, it is usually too late.
One last comment about Semi's: Today's Barrons has a negative article on them, suggest chip stocks may test the lows: MAY 14, 2001 "The Chips May Still Be Down", ... "It won't take much disappointment to make these stocks revisit their lows. And in the chip business, things are likely to get rougher again before they improve."...
John
Here is that Article:
Tuesday March 20 6:05 PM ET
Corning CEO Calls Stock Valuation 'Nuts'
By Timna Tanners
ANAHEIM, Calif. (Reuters) - The chief executive of fiber-optic giant Corning Inc. (NYSE:GLW - news) on Tuesday called his company's low current stock price value ``nuts,'' but said it won't keep Corning from pursuing strategic acquisitions to broaden its product line.
In an interview, John Loose told Reuters that nervous investors have sent Corning's stock price to levels unseen since October 1999, and that a weaker economy has forced the company to slow its pace of growth.
``A multiple of 20 on Corning is nuts,'' Loose said. ``I think investors are spooked.''
Like other fiber-optic communication equipment makers, Corning's stock has taken a nosedive in recent months as customers tighten their spending budgets for optical switches, components and fibers. Telecommunication companies have been short on cash and vulnerable to a weaker economy.
Corning's stock fell 4.9 percent or $1.24 to $23.96, amid a weaker New York Stock Exchange (news - web sites) after the U.S. Federal Reserve (news - web sites)'s decision to cut interest rates by 50 basis points disappointed the market. Using 2000 earnings of $1.23 a share, Corning's price to earnings ratio was about 19.5.
Shares of Corning have fallen from a high of more than $113 in September, when their price to earnings ratio was about 168, on 1999 earnings of 67 cents a share.
Yet Corning executives remain convinced that long-term Internet usage growth will require increasing amounts of its optical product offerings in the future.
Selective Acquisitions
During the current economic uncertainty, however, the company is re-examining the short-term pace of its growth. Corning executives on Monday said the company may cut some projects and more staff, in addition to recent layoffs of 825 workers.
``A year ago we would have been in full-blown, fast-track mode,'' Loose said at the Optical Fiber Conference (OFC). ''Obviously things are different now. Certainly on discretionary spending it's a time when we are very mindful of costs.''
While a lower stock price can crimp takeovers, Loose said that a target company whose value has fallen in tandem with Corning would still be a good buy.
Cash deals have become less attractive, he said, as the company focuses on its balance sheet and ensuring healthy cash flows. Stock deals, too, are more challenging because of the lower stock price, as well as the expectation that a stock deal should add to earnings within a year.
Still, Corning would be interested in acquiring an attractively valued transmission laser company. Transmission lasers advance light signals on fiber optic cables.
``I've always said at some point we would have to fill the gap we think we have in transmission lasers,'' Loose said. ``In long-haul transmission fibers we have a modest position and would be open to an attractive acquisition.'' |
