Cashing In On Life Extension
As the first of the Baby Boom generation turns 60, money managers expect another kind of boom -- in the revenues and earnings of companies that cater to this aging cohort of 77 million Americans. The older boomers, now age 50-plus, are in their peak earning years, and "the demand for products they use is growing faster than average," says Tom Laming, president of TrendStar Advisors. While some of these stocks may seem pricey, keep in mind that "this is just the beginning of an 18-year span of retiring boomers. So these companies have a long path of growth ahead of them," says Leslie Globits, portfolio manager of Victory Special Value Fund (SSVSX ).
>> ALLERGAN The older you are, the more likely you are to suffer from eye ailments such as cataracts, glaucoma, and dry eye. So an increase in the elderly population bodes well for Allergan Inc. (AGN ), a leading manufacturer of ophthalmologic pharmaceuticals.
What sets Allergan apart from its rivals, such as Alcon Inc. (ACL ) and Bausch & Lomb Inc. (BOL ), is the company's focus on cosmetic therapies. Allergan has a patent on Botox, the preferred boomer alternative to face-lifts. Allergan also is expanding its cosmetic surgery business by acquiring Inamed Corp. (IMDC ), maker of other facial fillers, breast implants, and the LAP-BAND, a device that blocks off part of the stomach so that it can hold less food. That product is growing rapidly, as it is less invasive than gastric bypass surgery.
>> PULTE HOMES The anxious rumors about the real estate bubble and rise in interest rates has brought homebuilding stocks down off their 52-week high. But Pulte Homes Inc.'s (PHM ) Del Webb unit, the largest U.S. builder of "active adult" communities, will help to insulate the company. Some 30% of its sales come from this division, which is rapidly opening communities for residents at least 55 years of age. Del Webb has built 41 so far, in the suburbs of Boston, Chicago, and New York, and plans to move into metro Atlanta, Dallas, and Minneapolis. The best part about catering to the boomer market is that 50% of the buyers pay cash, so they aren't as sensitive to higher mortgage rates.
>> SEI INVESTMENTS In the past six months, the first of the boomers have begun to withdraw funds from their retirement accounts without penalties. SEI Investments Co. (SEIC ) is betting they'll need lots of financial advice. "The company has completely retooled to meet this need," says Rachel Barnard, senior equity analyst for Morningstar Inc. (MORN ) SEI provides financial programs to independent financial advisers. SEI's return on equity of 45% is well above the 10% of its direct competitor Bisys Group Inc. (BSG ). It also has healthy profit margins of 24% and gross margins of 50%, nearly 10 percentage points above the industry norm.
>> STEINER LEISURE With time on their hands and a keen sense of adventure, boomers want to travel the world -- in style. Steiner Leisure Ltd. (STNR ), which runs spas on 120 cruise ships, aims to serve that need. Despite beating Wall Street's earnings estimates for the last 13 quarters, Steiner still sells at a reasonable price-earnings ratio of 15. "This $640 million [market cap] stock hasn't appeared on analysts' radar screens yet," says Victory Special Value's Globits.
>> ZIMMER HOLDINGS As boomers live longer, more active lives, they'll need to replace some of their body parts to keep going. Zimmer Holdings Inc. (ZMH ) is one of three leading manufacturers of orthopedic reconstructive products such as joints, hips, and knees. It's also the purest play on the higher-margin business of orthopedic implants. Though the stock is down more than 25% from its 52-week high, analysts expect earnings per share to average 17% a year over the next five years.
By Toddi Gutner