Daily Gains Letter

Will Baby Boomers Boost Demand for This Recession-Proof Play?

By for Daily Gains Letter | May 31, 2013

Baby Boomers Boost Demand for This Recession-Proof PlayAs they say, nothing is certain except death and taxes. Thanks to an aging North American population, the former has become a lot more profitable. And since we’re all going to need to deal with it eventually, there’s no reason to discriminate against death; in fact, those nearing or already in retirement could even profit off it.

Granted, nothing is recession-proof (every sector goes through cycles), but some sectors or stocks seem as though they should be. And for the next 20 years or so, the death care industry may be a safer bet than most.

The American baby boomer generation, born between 1946 and 1964, is 77 million strong. On January 1, 2011, the first of the baby boomers began celebrating their 65th birthdays; over the next 16 years, roughly 10,000 Americans will turn 65 every single day.

Not surprisingly, Canadian baby boomers are also beginning to retire. But the shift into retirement for Canada’s baby boomer generation is going to last a little longer; the births of the Canadian baby boomer generation began one year later, in 1947, and lasted two years longer (1966). In Canada, baby boomers make up 30% of the population. Long after the last baby boomer has retired, the senior’s population will continue to dominate the Canadian landscape; by 2051, roughly one in four Canadians will be 65 or over. (Source: Kidd, K., “Canada’s baby boom different from U.S.,” Toronto Star web site, March 9, 2013, last accessed May 30, 2013.)

And an aging North American demographic means the demand for death care is going to remain strong. This hasn’t been lost on Wall Street.

Three of the top death care companies have been experiencing tremendous growth since the markets bottomed in 2009.

Currently trading near $19.25, Carriage Services, Inc.’s (NYSE/CSV) share price has climbed more than 1,200% over the last four years. Trading above $18.60, Service Corporation International (NYSE/SCI) saw its share price jump more than 520% during the same time period. Stewart Enterprises, Inc.’s (NASDAQ/STEI) share price is up more than 700%, near $13.00.

That said, a major shake-up in the industry means competition just got a little fiercer. Service Corporation, the largest funeral and cemetery services company in North America, said it agreed to buy its nearest competitor, Stewart Enterprises, for $1.13 billion. (Source: “Service Corporation International To Acquire Stewart Enterprises, Inc.,” Service Corporation International web site, May 29, 2013.)

Once it acquires Stewart Enterprises, Service Corporation is expected to have revenues of nearly $3.0 billion and a backlog of future preneed revenues exceeding $9.0 billion. The two companies have 2,168 locations in 48 states, eight Canadian provinces, and Puerto Rico.

Any time investors see a stock post strong triple-digit gains, just as Carriage Services and Service Corporation have, they think they missed the boat. When it comes to the death care industry, there is an incredible amount of upside potential. Aside from both being financially solid, profitable companies, their outlooks remain strong. As the population continues to age, the demand for funeral services will also increase.

Investors looking for a long-term hold to add to their retirement portfolio might want to consider the rarely discussed and often overlooked death care industry.

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