Daily Gains Letter

This Recession-Proof Play Could Literally Resurrect Your Retirement Savings

By for Daily Gains Letter | Feb 12, 2013

















DL_Feb_12_2013_JohnPeople always point to a particular stock or sector and say it’s “recession-proof.” But chances are, it isn’t. Granted, some stocks perform better in different economic environments. Few stocks, however, perform well, regardless of what direction the economy is headed.

Despite the optimism on Wall Street, the outlook for America is weak. Since 2008, the actions of the Federal Reserve have put the U.S. economy into a death spiral. To stem the economic slide of the U.S. housing collapse that first surfaced in 2005, the Federal Reserve initiated three rounds of quantitative easing, dumping trillions of dollars into the U.S. economy. This has resulted in a weak dollar and an anemic economy.

And things are not going to get any better. The Congressional Budget Office (CBO) expects the U.S. economy to remain moribund in 2013 and for unemployment to remain near eight percent. But it gets better. The CBO projects that both actual and potential real gross domestic product (GDP) will grow 2.3% annually between 2019 and 2023. (Source: “The Budget and Economic Outlook: Fiscal Years 2013 to 2023,” Congressional Budget Office web site, February 2013.)

What do high unemployment and a weak dollar mean for the average American investor? These factors mean investors need to find solid investments that can beat the pathetic returns they’re earning with bonds, Treasuries, and certificates of deposit (CDs).

It may not be the most pleasant-sounding business, but “death care” provides services and products that will always be in demand. In fact, an aging demographic means the demand for death care is only going to increase.

After a lull, death care is showing signs of life. Back on January 1, 2011 the first of the baby boomers began celebrating their 65th birthdays. From 1946 to 1964, 77 million Americans were born, and for the next 16 years from now, 10,000 will be entering retirement every day.

There’s more to the death care sector than you might think. In an effort to broaden market appeal, many companies are offering expanded services, including: online memorials, grief counseling, estate planning assistance, and even discount travel arrangements.

Carriage Services, Inc. (NYSE/CSV), established in 1993, operates 167 funeral homes in 26 states and 33 cemeteries in 12 states, mostly in California, Massachusetts, and Texas. The company removes and prepares remains, sells caskets and memorials, provides transportation services, performs ceremonies and burials, and maintains cemeteries.

A financially robust company, Carriage Services also provides an annual dividend of $0.10 per share, or 0.7%.

The company recently announced that third-quarter revenues climbed 14% year-over-year to $49.5 million. Net income for the period slipped to $603,000, or $0.03 per share, versus $787,000, or $0.04 per share, in the third quarter of 2011. (Source: “Carriage Services Announces 2012 Third Quarter Results,” Carriage Services, Inc. web site, November 1, 2012.)

Year-to-date revenues were up 7.3% at $151.1 million; net income climbed 15.7% to $7.7 million, or $0.43 per share.

Melvin Payne, CEO of Carriage Services, commented, “Our third quarter performance was outstanding, as we achieved revenue growth of 14% to a record $49.5 million, and Adjusted Earnings Per Share growth of 60% to a record 16¢ per share. This record performance during what has traditionally been our weakest seasonal quarter was driven by substantially higher year over year revenue growth and margin expansion in each of our four major profit segments.”

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Chart courtesy of www.StockCharts.com

Carriage Services’ share price has been bullish for almost four years, and it’s up over 170% since January 2012; it’s up almost 25% since the beginning of 2013 alone. And, after reporting record third-quarter revenues and adjusted earnings per share, and a projected earnings-per-share (EPS) growth of 160% in 2013, Carriage Services continues to have great short- and long-term growth potential.

While the company’s third quarter performance was excellent, the company has positioned itself over the last number of quarters to have a strong finish to 2012 and to enter 2013 with a much higher capacity of sustainable earnings power.

The company completed and rolled out an updated Cemetery Standards Operating Model and recruited the organizational leadership both at the corporate and field level to take its cemetery portfolio performance to a much higher and sustainable level.

It also recently made substantial structural changes in how it manages and receives compensation from its trust funds, which should result in higher sustainable financial revenues over time.

Third, Carriage Services increased its acquisition activity, which will continue to drive revenues and earnings growth. Subsequent to the end of the third quarter Carriage Services expanded its presence into North Carolina, with acquisitions in High Point and Archdale; it also expanded its market presence in Texas and Oklahoma.

Because of the aging demographic, Carriage Services will continue to have great potential to the near future. Carriage Services is an excellent defensive stock that risk-averse investors can hold onto for both steady income and capital growth.

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