A Look at 2 Maturing Stocks Struggling to Become Cash Cows

Here are two consumer products many people take for granted each day: the mattress they sleep on and the glass protecting their LCD TV. Tempur-Pedic (TPX) and Corning (GLW) are the premier producers of these respective products. And both of them have been trading down in the last 6 months.

Maintaining Margins

Competitors, or imitators, are starting to cut into the market share of both companies. Corning has seen some significant price declines in display technologies with Asahi Glass providing a reasonable substitutes. Tempur-Pedic similarly has explored lower priced product lines to compete with Select Comfort (SCSS) and Sealy (ZZ) which also have memory foam options at a discount.

Highly Cyclical

They say you spend 1/3 of your life in bed, and I can only guess another third is spent touching or watching some glass screen. But you only need to buy a bed once every couple decades of so (usually timed with changing homes) and display screens are closely tied to discretionary spending on phones and televisions. Tempur-Pedic and Corning are going to be linked to the housing recovery and improving consumer confidence.

Concentrated Revenue Streams

Although Corning has five segments it operates in, 1/3 of its sales are coming from display technologies. Their specialty materials segment should see increasing growth with Gorilla Glass sales anticipated to grow 10-15% over the last quarter. As for Tempur-Pedic, 2/3 of sales come from top of the line mattresses. Low cost line, Simplicity, has yet to see sales pick up.

Preparing For The Future

In response to earnings revisions this year both companies have positioned themselves to handle future demand and capacity issues. Tempur-Pedic has stated plans to increase spending on advertising efforts to reinforce brand equity, although it’s said this marking expense will drastically cut profits. Corning, facing capacity constraints last year, invested eagerly in increasing their capabilities but is still trading below book value.

These stocks spark a lot of debate among investors over whether their heyday has already come and gone… What do you think? Add your comments below.