Looking for Bounce in Mattress Market

Does the importance of a good night’s sleep increase as the economy improves? There may be some correlation, but a look at the charts of companies in the mattress markets shows the industry is on the rebound from a terrible slump that mirrored last year’s economic woes.

A year ago, stocks of small cap mattress companies like Minneapolis-based Select Comfort Corporation (Nasdaq: SCSS, http://www.selectcomfort.com) and Trinity, NC-based Sealy Corporation (NYSE: ZZ, http://www.Sealy.com) and even the larger players like Lexington, KY-based Tempur-Pedic International (NYSE: TPX, http://tempurpedic.com) were all bottomed out at 52-week lows. Today they’ve all bounced back and are trading near their highs for the year.

According to the International Sleep Products Association, sales of mattresses, which sagged as the economy slumped, are expected to increase 4.5 percent this year and 6.3 percent in 2011. Previous recessions have show that when economic downturns end, mattress sales turn up again. In fact, a recent article in the Los Angeles Times and Bergen Record (http://www.northjersey.com/news/93550749_Luxury-bedding_makers_see_recovery_on_horizon.html) noted that much of the new mattress demand is expected to come from luxury-bedding customers who postponed big ticket purchases while stock portfolios were shrinking.

That dynamic could be good news for smallcaps in closely related industries such as Monroe-MI-based La-Z-Boy (NYSE; LZB, http://www.la-z-boy.com), a maker and retailer of a variety of upholstery products and furniture. LZB indeed dropped way down to $4.30 a share during the downturn and is currently trading at about $7.80, still off its 52-week high of $15.46. Or St. Louis-based Furniture Brands International (NYSE: FBN, http://www.furniturebrands.com), now trading at just under $5.00 is well off its low of $2.47 but still shy of the $9.47 it reached in May. If the economy improves, these stocks should follow suit if past performances hold true.

Other smallcaps looking for a bounce from the mattress market include Northville, MI-based Amerigon Incorporated*(Nasdaq: ARGN, http://www.amerigon.com), which develops products based on advanced thermoelectric technology but has announced it will be creating a new mattress with an as yet unnamed partner. The mattress will have individual controls to actively heat and cool the left and right sides of the mattress independently. Amerigon management has told investors to watch for an announcement about the mattress project this summer. The company’s stock is trading at about $8.65, down from its 52-week high of $11.68 but up 24 percent in only the last four weeks.

* Denotes Allen & Caron client

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