This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

October 9, 2009 - Culp, Inc. (CFI-NYSE) is a leading manufacturer of mattress fabrics and upholstery fabrics to the furniture and bedding industries primarily in North America. The company has two segments: Mattress Fabrics and Upholstery Fabrics.

The Upholstery Fabrics segment offers products in various categories of fabric that are used as coverings for furniture. Its products include jacquard woven fabrics, velvets, microdenier suedes, woven dobbies, knitted fabrics, and piece-dyed woven products that are used in the production of residential and commercial upholstered furniture, such as sofas, recliners, chairs, loveseats, sectionals, sofa-beds, and office seating and modular office systems. This division also offers decorative fabrics for use in commercial textile wall covering industry. Upholstery fabrics were 47% of 2008 revenues.

Culp, Inc. also offers its products in Asia and the Far East. The company was founded in 1972 and is headquartered in High Point, North Carolina.

In spite of a miserable economy, this company looks to be improving earnings in 2010. While the bottom line took a hit in 2009 (fiscal year ends in April), taking earnings to 31 cents vs 57 cents in 2008, Culp is expected to report 56 cents a share in 2010, then 72 cents in 2011. Earnings are due out in November for the second fiscal quarter. Analysts look for 16 cents a share, up from 9 cents a share last year. In the third quarter, they see 11 cents compared to zero for the same period in 2009.

One of the main challenges for Culp has been the continued importation of furniture and fabrics from Asia. Also, customers have been buying much more leather than fabrics for their furniture. One answer: Culp makes fabrics now that have very similar characteristics of leather. It has a patented process that it vigorously defends, having filed infringement complaints against 3 fabric manufacturers in the last 6 months. In the fiscal first quarter, the upholstery division had a small profit, compared to a large loss in the same period last year.

Another answer to foreign competition: Start a Chinese operation. Culp is now manufacturing in China for some of it upholstery fabric. While less expensive to produce, it offers customers on a tight budget an entry level fabric while giving the company a low-cost, vertically integrated operation. So far, customers like the new choice, suggesting that when the furniture market begins to revive and household spending improves, Culp is well positioned to capitalize on it.

Culp is also investing in new fabric for mattress ticking, improving its weaving and knitting capabilities. While mattress demand has been slow, along with most other larger dollar items, it will eventually pick up as consumers feel more secure about their jobs and aren't sleeping quite as well, not because of anxiety, but because their beds are sagging and need replacing.

A couple of possible concerns about Culp: it's a very small stock, with a Market Cap (number of shares times the price of the stock) at $75.54 million. Small stocks have a way of getting hammered due to lack of institutional support when markets go south. That was evident late last year and early in 2009, as the stock tanked from $7.90 to $1.30 within a couple of months. Since then, it rebounded to a current level of $5.88. That's a recovery of 352% in only 8 months. The stock traded as high as $21.80 in 1998. That's the second concern: it can move quickly, up and down.

More numbers: Forward P/E is 8.17. Price to sales is .40. Price to book is 1.52. Book value is $3.91. Operating margin for the last 12 months was 4.81%. Total cash is $15.48 million making $1.21 in cash per share. Total debt is $16.89 million. Current ratio is 2.21. Beta is a high 1.92. Insiders own 37.25% of the stock while institutions have 49.40%.

If you're an aggressive investor, you'll like this story. And if you think the economy is about to grow, you'll like it even more. Culp has been a consolidator in mattress fabrics, having bought several smaller manufacturers over the last 2 years. It's now in a position, with it newest fabrics, to dominate mattress ticking. When the economy finally turns, look for good things at Culp.

- Company Web site: www.culpinc.com

- Ted Allrich