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Andrew Mickey
Andrew Mickey

The Next Boom Emerges

November 23, 2008 | About:

The current bear market is pretty bleak. The recent market swings have pushed a lot of investors out of the market completely. The auto makers, China, oil commodities, alternative energy, etc. are all down in the dumps and the near-term upside is very, very limited.

There’s almost no refuge where you can get a decent return. Earlier this week, the average interest rate for a one year bank CD was 3.36%, the average money market account yielded below 3%, and 1-year treasury bonds were yielding less than 1%.

Sometimes it seems like there are no good investments to make right now. We still believe new bull markets are born from the bodies of dead ones. It is never different this time (just look at oil). And that is why it is more important now to start looking ahead.

As many companies head for bankruptcy, there will be plenty survivors. The survivors will cut costs, reduce capacity, or reinvent themselves. A business that does whatever is necessary will survive. And those companies who are already eyeing the future and getting prepared now (Detroit vs. Japanese carmakers are perfect examples) will be thriving in a couple of years. That’s why I always keep a very close eye on Corning (NYSE:GLW).

Reinvent or Perish

Corning has been around for more than a century. Corning’s history is remarkable. It always manages to be in the right place at the right time. Corning emerged as a leader in light bulb manufacturing in the 1920s. Its light bulb manufacturing technique revolutionized the industry by increasing light bulb output per worker fivefold.

In the 1940’s, the company again bet big on the growth of a new technology: the television. It saw an opportunity to specialize in making equipment for TV manufacturers and developed a mass production process for cathode ray tubes (CRT).

Then in the 1970’s it developed fiber-optic cables. A little more than 20 years later, this development would provide the plumbing to make the Internet what it is today. As a result, Corning became one of the darlings of the tech bubble. It shares soared to $100 as demand for fiber-optic cable exploded.

Of course, the good times wouldn’t last. Corning was hit hard when the tech bubble burst. Fiber-optic cable sales plummeted and Corning was on the brink of failure. Its shares were trading for a lowly $1 a piece.

As usual, the Wall Street’s short-sightedness missed one of the next big booms forming. Corning ramped up its LCD production which it had been working on since the 1980s. Now almost every new TV in the world is a flat panel LCD.

The LCD business is starting to dry up a bit now though. Consumer spending has fallen off a cliff and the world staring a long, painful recession right in the face; it’s not a great time to rely on TV sales.

In truly historic fashion, Corning isn’t sitting around licking its wounds (or wasting time trying to figure out how to get some bailout cash from the government). The company is doing what it does best, reinventing itself. The way the world is shaping up again, it looks like Corning is positioning itself to capitalize on what could easily be the next big boom…yet again.

The Next Boom

Quite frankly, I was downright excited to learn Corning is quietly doing some extensive research on stem cells. More importantly, what Corning is working on hasn’t been plastered across the pages of the Wall Street Journal and New York Times – by then it’s usually too late for the truly massive gains we’d be expecting to invest in a market like this.

But I know what you’re thinking…”Andrew, stem cells? That was big four years ago. That bubble burst too.”

You’re right. But that was a time when stem cells were touted as the eventual cure-all for everything. The market was expecting stem cells breakthroughs to come at an alarming rate. But, in typical short-sighted fashion, not much news came and the hot money on Wall Street moved onto something else.

At the time, shares of StemCells Inc. (STEM) rocketed from a low of 50 cents in 2002 to more than $6 per share in 2005. Another stem cell research leader is Geron (NASDAQ:GERN). Geron was a hot stem cell player too. Geron’s shares rocketed from below $2 to more than $12 over the same time period.

But I don’t think the big money will be made in using stem cells as part of treatments or anything like that. The big value for stem cells over the next couple of years will come from researchers who use stem cells to accelerate the drug development and approval process.

Here in the Prosperity Dispatch we’ve talked about the staggering number of blockbuster drugs going losing patent protection in the next few years. Also, we’ve looked at potential safe havens in companies that can provide technology or services that can reduce costs for their customers .

Stem cells used in research will provide new drugs to Big Pharma faster than ever before. Stem cells will help bring new drugs to market and at a lower cost. Both things we’re looking for in a downturn like this.

Corning is already laying the groundwork to capitalize on the coming boom in stem cells. In a recent interview with Drug Discovery & Development (DDD) magazine, Corning lifts the veil on what it has been working on in its upstate New York research facility.

Time is Money

Corning points out: “The huge challenge in drug discovery and development remains--identifying and implementing technical solutions that both shorten cycle time and reduce the gap between R&D spending and drug approval.”

Think about that for a second, “shorten cycle time” and “reduce the gap between R&D spending and drug approval.”

In the drug development industry, where it costs as much as $800 million to develop a new drug, time is money. By using stem cells to accelerate developing drugs and getting them to market, there could be a lot of money saved. That is absolutely invaluable, especially when during periods when money is tight and R&D budgets are getting slashed.

It’s already starting to happen. The Harvard Stem Cell Institute recently announced it has created stem cells for 10 genetic disorders. The Institute co-director says the use of these stem cells will allow researchers to “ watch the disease progress in a dish, that is, to watch what goes right or wrong.”

That’s just the start of it all. When asked to make a bold prediction on the biotech front, Corning stated, “Ten years from now, stem cell therapies will be main stream and gene therapy back in vogue.”

It’s tough to imagine…I know. But it was also tough to picture $147 a barrel oil, $135 a pound uranium, and $20 a bushel wheat just a few years ago. As we’ve seen, it can happen. And if you’re in early enough, the rewards can be very, very great.

That’s why I believe this is still a very exciting time to be an investor. Personally, my top holding is still cash and it has been since February.

I’m a firm believer in cherry-picking opportunities and waiting for the right time. The most successful investors I’ve ever worked with are always asking, “What’s next?” And if a company like Corning is betting on stem cells to be the “what’s next,” it’s definitely worth keeping an eye on.

I still won’t stay I’m bullish on stocks (waiting for unemployment to hit a high next year combined with a stock market bottom). The next biotech wave, however, is shaping up to be a very, very big one. And once again, it’s time to change gears and start boning up on the biotech industry. The market downturn has put time on our side, but there’s still time to start conservatively buying stocks in a way which allows you to participate in any upside while still having plenty of cash on hand capitalize on any further downswings.

Good investing,

Andrew Mickey

Chief Investment Strategist, Q1 Publishing

About the author:

Andrew Mickey
Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 3.2/5 (5 votes)


Sabonis premium member - 8 years ago
"Personally, my top holding is still cash and it has been since February."

Its amazing that everyone knew this was coming and everyone has been in cash.

I had no idea there were this many stock market geniuses in our midst.

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