Keeping Corning in my long-term 50 Stocks portfolio but calling shares fully valued after 36% gain year-to-date

Update December 8, 2016. Corning (GLW) is up again today–1.22% on December 8–on news that the company has authorized a $4 billion share buyback.

With a gain of 7.2% in the last month and 36.1% year-to-date I think the shares are now fully valued. No need to sell the shares if you’re a long-term investor but I wouldn’t look to add to this position right now. Investors should remember that Corning is a cyclical stock and that the company in 2015-2016 may have seen the top of the recent cycle. Standard & Poor’s forecasts that sales will grow just 2.8% in 2017 and that margins will decline in 2016 and 2017 to between 42.2% and 42.5% in comparison to 43% in 2015. Earnings per share should grow to $1.72 in 2017 from $1.44 in 2016, according to S&P, as buybacks reduce the share count.

Corning’s growth in 2017 depends on the health of the economy and consumer’s willingness to spend to upgrade their flat screen TVs, PCs, tablets, and smartphones.  (Corning controls about one half of the market for glass panels used in displays.) With smartphone sales forecast to grow by a slow 7% in 2017, the company won’t see much support for revenue growth from that market. It doesn’t help either than price for glass used in liquid crystal displays showed a drop in price in the third quarter.  Corning reported slower than expected sales growth in sales to its biggest customers. Sales grew by 4% in the quarter from the year earlier period.

Long-term investors hold Corning through these cycles because the company continues to grow market share and increase margins by investing in improvements in product and production technologies. Corning consistently outspends its rivals (largely Nippon Electric Glass with a 25% market share and Asahi Glass with a 25% share) on research and development (9% of sales at Corning vs 4% at the company’s competitors.) That spending has enabled Corning to produce 40% gross margins versus 23% on average for its peers. Recent examples of the pay off on that R&D spending are the company’s patented Gorilla Glass with its greater resistance to scratches and breaking, its greater strength per thickness of glass, and its increased flexibility, and its proprietary fusion production technology for producing large scale LCD glass.

Corning shares are up 224.5% since I added them to my 50 Stocks long-term portfolio on December 30, 2008. The shares pay a 2.29% dividend.