Investment Number 37

Published in Company Comment on 8 November 2011

One Fool spots a P/E of 6 and takes his portfolio to 37 shares.

To me at least, investing is a hobby, as well as a way to make money, so I don't find monitoring my portfolio too onerous. But I'm very much aware that keeping track of shares can be rather time consuming.

It's not just the work that's required to keep an eye on dividends, watch the news and digest company reports. Searching for new opportunities often takes quite a bit of time as well.

Including the shares on my watch list, I typically receive between 20 and 40 official corporate announcements every day. Having recently bought my 37th share holding, I'm now fairly close to my limit for the number of companies that I monitor.

I'll give you the name of number 37 later on, but to whet your appetite, it was on a price-earnings (P/E) ratio of 6 having grown its earnings per share (EPS) by almost 500% during the last five years.

How I pick them

I don't employ a fixed strategy for finding my new investments. My interest tends to be triggered by specialist articles, news reports, discussions on message boards and events in everyday life. To show you how serendipitous this can be, one of my best-ever investments was Marvel Entertainment, which I became interested in after seeing the first Spider-Man film at the cinema!

I decided that, because the film clearly demonstrated how computer graphics made it possible to portray superheroes in movies, Marvel's library of characters and stories would soon be mined by Hollywood. So a few days later I owned some shares and I sold out in 2009 after Walt Disney (NYSE: DIS.US) bought the company for several times what I'd paid.

The big work is done before I buy. After that it's a case of monitoring a company's performance through its reported accounts and management statements. I generally avoid financial companies (horrible accounting rules and easily mismanaged businesses!) as well the high-technology industries, preferring to concentrate on companies that have strong brands and more stable businesses.

So what is number 37?

My latest acquisition was to put roughly 1.5% of my portfolio into American glassmaker Corning (NYSE: GLW.US). Unlike some investors, I'm perfectly happy to invest in foreign companies and I especially like to diversify not only by industry but also by country.

Most American and Canadian companies display their key figures for the last five years in a concise table in their annual reports. This saves a lot of work and it allows me to quickly decide if the company warrants a further look or whether I should move onto another potential investment.

I discovered Corning having stumbled across an article about its 'Gorilla glass', a high-strength, scratch-resistant glass, on a technology website. Corning's shares were down by around 30% on the year, in part because of investor concerns over stagnant profits at one of its joint ventures. But the stock traded on a historic P/E ratio of 6 while EPS since 2005 had risen by some 490%. So I decided to take a closer look.

Tactics, tactics

When looking at a new share idea, I start off by going to the company's investor relations website, where I download the most recent annual reports and any interim reports for the current year. I pay particular attention to the profit and loss account, and the balance sheet.

If I like what I see, I'll then skim through several more annual reports. After this I look through the company's recent news stories and check out a few industry websites. If I still like the company and if I'm happy with the price I'll buy some (if I have the cash) otherwise it goes onto my watch list

I spent about four hours deciding whether to buy Corning shares, though I'd all but made up my mind within the first 15 minutes. The one thing that might have put me off was asbestos claims against one of its joint ventures (more on this later), but these seem to be under control.

What Corning does

Corning's business is split into five divisions; Display Technologies (television screens), Telecommunications, Environmental Technologies, Specialty Materials and Life Sciences.

Most of Corning's profits come from its joint ventures with other companies such as Mitsubishi and Samsung. The largest of these joint ventures is Dow Corning, a 50/50 partnership with Dow Chemical (NYSE: DOW.US), which hit the headlines for all the wrong reasons in the 1980s and 1990s following to a torrent of lawsuits and dubious court judgments concerning its breast implants.

These cases were settled in 1998. Dow Corning emerged from bankruptcy protection in 2004 having paid out billions in settlements, even though the US Government Institute of Medicine reported in 1999 that it had found no evidence to say that silicone breast implants caused major diseases. These problems now look to be water under the bridge and Dow Corning generates almost 50% of Corning's profits.

Show me the money

Corning's shares currently trade at $14.76. EPS for 2010 was $2.25, which puts the shares on a historic P/E ratio of 7. The stock also yields 1.7%, net of the 15% withholding tax suffered by UK investors on their US dividends. EPS for the first three quarters of 2011 came to $1.45 and the full-year forecasts range between $1.75 and $1.90 as analysts have become a bit pessimistic about fourth-quarter television sales around the world.

I've summarised Corning's key figures for the last five years in the table below. The big jump in EPS for 2008 compared to 2007 was mostly due to a one-off credit related to asbestosis claims against Pittsburgh Corning Corporation, its 50/50 joint venture with PPG Industries (NYSE: PPG.US).

Year20102009200820072006
Turnover ($m)6,6325,3955,9485,8605,174
Post-tax profit ($m)3,5582,0085,2572,1501,855
Earnings per share$2.25$1.28$3.32$1.34$1.16
Dividend$0.20$0.20$0.20$0.10$0

I plan to own Corning shares for many years and anticipate buying some more in the New Year. I think that in the next few years, they could well turn out to be bit of a bargain.

More from Tony Luckett:

> Tony owns shares in Corning.

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Comments

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Benatar 09 Nov 2011 , 6:33pm

All the investment advice I've received or read says 37 is too big a portfolio for a private investor. It becaomes a full time job keeping track of so many shares.

TonyTwoTimes 10 Nov 2011 , 9:15am

Hi Benetar

I'm semi-retired, so I have a fair bit of spare time (and investing / finance / economics is a hobby of mine).

8 of the 37 are investment trusts and exchange-traded funds, which require very little work.

Tony

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