Roughly 10,000 baby boomers turn 65 each day, and this trend is expected to continue for the next 14 years. The aging of America is a major demographic driver and impacts consumer spending trends – and in turn, stocks and financial markets.
Baby boomers represented 26 percent of the U.S. population at the end of 2014, or about 75 million people, according to the Census Bureau. “The boomers have the most disposable income in the system and will for a number of years. There are more millennials, but they don’t have the assets of the boomers,” says Rodney Johnson, principal at Dent Research, a research and newsletter firm based in Delray, Florida.
“Boomers value quality, and you can see that in everything from their grocery bills, which are heavy in organic produce, to their home remodeling,” says Charles Sizemore, founder of Sizemore Capital Management, a Dallas-based registered investment advisor.
What stock sectors and companies are benefiting and poised to profit from the changing demographics ahead? Investors looking to ride the trends of baby boomer spending in the years ahead can consider what boomers need, want and what they do.
Stock sectors that promote progress in health and well-being, such as health care, technology, physical fitness, pharmacy and financial services will remain promising for investors, says Ernie Cecilia, chief investment officer at Bryn Mawr Trust, a full-service wealth management business in Bryn Mawr, Pennsylvania. “Boomers are increasing their dependence on advancement in these areas to enhance their overall well-being and prosperity,” Cecilia says.
What do boomers need?
The health care sector has been on fire in 2015. The health care sector covers a wide range of industries, including pharmaceutical companies, biotechnology companies, managed care companies, hospital management firms and the makers of medical equipment. “Though they’d probably prefer this wasn’t the case, boomers are buying more medical care,” Sizemore says.
Top picks within health care include pharmaceutical firms. “We think the pharmaceutical companies will have another incredible run. They are buying smaller research and development companies that are developing new therapies,” Johnson says.
Here are five stocks Cecilia says may benefit from these trends:
- Thermo Fisher Scientific Inc. (TMO) provides analytical instruments and technological equipment for medical practices all over the globe.
- Novartis AG (NVS) focuses on oncology, heart failure and psoriasis.
- Gilead Sciences Inc. (GILD) specializes in biotech and is known for its innovation in hepatitis C treatments.
- Walgreens Boots Alliance Inc. (WBA) is a global player with strong sales through retail and wholesale pharmaceuticals.
- Prudential Financial Inc. (PRU) delivers solutions for personal finance needs, such as annuities or 401(k)s.
What do boomers want?
Consider how boomers spend their time. They like to shop online, so think about Amazon.com (AMZN) and eBay Inc. (EBAY). “My parents are shopping online because, frankly, they don’t want to go anywhere. They are driving trends at Amazon, which is on track for $100 billion revenues this year,” Johnson says.
“Boomers have extra disposable income, which they are willing to put into houses, high-end toys or products,” says Scott Rothbort, president of Lakeview Asset Management, an investment firm in Henderson, Nevada.
Four other stocks to capitalize on this trend are:
- Apple (AAPL). While boomers may not be early adopters of new technology communication and entertainment products, they do embrace them. “They like high-end gadgets like iPhones, iPads and Apple watches,” Rothbort says.
- Lowes (LOW) and Home Depot (HD). Boomers want to improve their homes through renovations or buying new homes. “Most people don’t move when they retire. Over 65 percent stay where they are,” Johnson says. A lot of boomers will choose to renovate and update.
- Toll Brothers (TOL). Some boomers want a new house. “Toll is a high-end homebuilder, and they are doing quite well with empty nesters who sell their houses and buy smaller luxury homes,” Rothbort says.
What do boomers do?
They travel. They go out to eat, but they are still conscious of their budgets. “Casual restaurants should do very well. Boomers like to go out, but fast food is not where they are. They want a little cache, but still in a modest price range,” Johnson says. One stock to consider in that area is Bloomin’ Brands (BLMN), which operates restaurants including Outback Steakhouse, Bonefish Grill and Carrabba’s Italian Grill.
Boomers want to stay active and are willing to embrace technology to help. Fitbit (FIT) fits in with both the physical fitness and technology trends. “Fitbit promotes the incorporation of physical fitness into a daily routine with minimal hassle,” Cecilia says.
Boomers like to travel. “People go on cruises. They are traveling more. They have no problem going on a cruise every three months. Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) are my two top picks. They are good, well-managed companies,” Rothbort says.
Investors should also consider the nostalgia factor. “Look at today’s 40-year-old man and figure out what car he wanted but couldn’t afford when he was 16. Buy that car today, at jalopy prices, and sell it to one of those 40-year-old men in another five years, when he’s having a midlife crisis, thinking back to his youth and looking to restore a classic car,” Sizemore says.
Finally, remember grandparents like to spoil their grandkids. “Don’t neglect the grandparent angle. Look at what grandparents are spending money on today, and understand that there will be a lot more grandparents coming down the pipeline in the years ahead, Remember, the millennials – the boomers’ kids – have barely started the family formation process,” Sizemore says.
Copyright 2015 U.S. News & World Report
Written by Kira Brecht of U.S. News & World Report
(Source: U.S. News & World Report)