Most, if not all, the questions are qualitative which requires in depth digging.
The internet has changed the way information is gathered and scoured, but Fisher would do things like stand outside the building of his investment company and ask employees questions or look at the furniture to see whether management is lavishly spending money.
Quite uncommon in terms of investment analysis, but for him, it worked and it did yield uncommon profits.
The following answers to Fisher’s 15 points with respect to Corning (GLW) was written by Joakim Aske. He sent me an 11 page investment thesis on Corning which he plans to submit to Value Investors Club and has graciously allowed me to post it. I will break it up in to several pieces and post it to make it easier to read.
It really is excellent so I’m glad that he was kind enough to send it to me.
Plus, if you have an investment idea or article you wish to share, send it to me and I’ll be more than happy to post quality content.
Fisher Asks 15 Questions about Corning (GLW)
1. Does the company have the products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
- Glass for screens (LCD/OLED/AMOLED) are likely to be in high demand for the foreseeable future. Tablets, computers, TVs, cars, glass for architectural uses are all markets for Corning’s Glass.
- The world’s fleet of trucks and cars will be requiring emission filters until a different fuel source is developed. Regulations worldwide is tightening to fight CO2 emissions. Corning also invented the ceramic filter and is producing filters for trucks and cars.
- Bandwidth need is increasing at a healthy pace as more and more devices are connected to the internet, which drive data consumption. Corning invented fiber connections and is continuing to develop new solutions that will enable increased bandwidth.
- Dow-Corning is involved in the research and sales of silicone material for solar cell manufacturing, assembly and installation.
In conclusion – a brief overview of Corning’s Products reveals that there is a healthy potential for growth.
2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
- GLW spent around 10% of revenues on R&D and aims to create 4 new markets with new products each decade.
- Yes, they are working to expand their Gorilla glass into other uses such as automotive and architectural uses.
- Designing bacteria and virus killing glass surface for the medical industry
- Develop glass as material for solar cells
3. How effective are the company’s research and development efforts in relation to its size?
- Basic overview – They have an efficient research & development team as they have had a string of successful products and internal process developments in the last years.
- Long history of extraordinary research results
4. Does the company have an above average sales organization?
- From my research there is little evidence that they have a superior sales organization.
5. Does the company have a worthwhile profit margin?
- Yes, even under the worst scenarios their profit margin stays above 10%.
6. What is the company doing to maintain or improve profit margins?
- Focused research efforts and moving to thinner and thinner glass as that increases their gross margins.
- Building economies of scale within their new strategic business units such as – Emissions, Gorilla Glass
- Maintaining the ability to charge premiums compared to the competition.
7. Does the company have outstanding labor and personnel relations?
- From my research, their labor and personnel relations are good.
8. Does the company have outstanding executive relations?
- Yes, all of the C-level executives have been employed in the company for several decades and have long tenures as C-level executives. The CFO has served under four CEO`s.
9. Does the company have depth to its management?
- The company has a focus on developing managers and do not fire them based on external influences that they cannot control such as recessions and similar. The current CEO was the head of the optical fiber division in the dotcom crash and was tasked with turning the company around as that crisis unfolded.
- Most of the management has worked their way up from the bottom.
10. How good are the company’s cost analysis and accounting controls?
- There is no evidence that they are incompetent at this. It is hard to say anything more as this form of information is close to impossible to attain without being an insider.
11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
- GLW has had a constant leadership in engineering and research over their competitors the last decade and remains well positioned to continue doing so.
- They have also a significant patent portfolio, which dwarfs their competitor’s portfolios.
12. Does the company have a short range or long range outlook in regards to profits?
- Yes, short term the profitability of its display segment and its Dow-Corning subsidiary will decline and reset at a lower level than seen before.
- Long term they are aiming for 10 billion dollars in revenue by 2014.
13. In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
- No, they have a strong balance sheet and a healthy free cash flow.
14. Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
- No, they have been candid with what they are doing to remedy the external influences and their actions internally. They have not had troubles admitting errors in their research and development efforts.
15. Does the company have a management of unquestionable integrity?
- There is nothing to indicate lack of integrity in the current management from my research.
Do you use Fisher’s 15 Point Checklist?
When I did the same thing a few years back on a small company called Aerogrow, which is basically bankrupt now by the way, all the information got to me and I fell into confirmation bias. Be careful of this when applying these points.
Be objective. Or better yet, try to answer the questions in order to “break” the investment.
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