Finding Gold In Oldie Stocks

Companies serving seniors make good long-term bets

Investing in stocks that cater to a graying population may offer a golden opportunity. The over-50 crowd today accounts for more than $2 trillion in income, double that of 10 years ago, and more than half the discretionary spending power in the U.S., says Age Wave, a marketing consultant in Emeryville, Calif. And since older people are living--and staying active--longer than earlier generations, their market sway is likely to last for a while.

If you're shopping for stocks that are gray plays, you have lots of choices--from travel and financial-services companies to pharmaceuticals and biotech. The trick is to find the leaders in these sectors. And take a long-term view, since the gray theme will be playing out over the next 20 years or more, as baby boomers move through their twilight years.

Take Carnival Cruise Lines. It's the dominant company in the cruise business, a sector that is poised to grow 17% to 20% annually over the next five years. Carnival has been shaken lately because of disclosures over its handling of onboard sexual assaults. But some analysts say this shouldn't affect the stock in the long term. "Its fundamentals are still strong, and they should remain so," says Todd Bucholz, chairman of money manager Victoria Capital in Washington D.C. Carnival, which has a strong management team, not only holds 36% of the market, but serves both high- and low-end customers. Analysts estimate its long-term earnings growth to be around 17% a year.

Marriott International, meanwhile, is a leading gray play for two reasons. Its Marriott Vacation Club International unit holds 7% of the time-share market, a $6.2 billion industry that, according to the American Resort Development Assn., is likely to grow 16% annually over the next 15 years. Marriott owns 41 high-end time-share resorts and will open mid-priced locations in 2001, broadening its market. In addition, Marriott operates assisted-living communities. Marriott Seniors Living Services has 131 facilities, and another 23 will open by the end of next year. Marriott's long-term earnings growth is estimated at 16% annually.

The financial services industry, meanwhile, is expected to get a boost helping the over-50 set manage its money. This group now accounts for 80% of all personal wealth in U.S. financial institutions, says Age Wave. In this sector, look for breadth of services as well as market size. Marshall Acuff, chief equity strategist at Salomon Smith Barney, singles out Equitable because it's "into everything, from insurance and annuities to money management and brokerage services." Erik Gustafson, a portfolio manager at Stein Roe Mutual Funds in Chicago, favors Citigroup for similar reasons. Estimates for long-term annual growth for Equitable and Citigroup are 15% and 20%, respectively.

There's no lack for gray plays. The challenge in finding green in the gray market is to narrow your choices.