Smart Stocks for Anticipating (yet) Another Baby Boom

By Kevin Gill - August 13, 2012 | Tickers: CRI, MAT, SUMR, DIS | 0 Comments

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Let’s dispense with the formalities and introductions and get to the point- American birth rates dropped because of the recession and recovery means a ‘baby boom’ due to couples waiting to start families. Take a look at the basic statistics. According to a Pew Research Center survey, 22% of 18- to 34-year-olds have postponed having a baby because of the recent economic downturn. Yet, American women want to have 2.3 children (don’t ask me what .3 of a child would look like…) in their lifetime as discovered by a Centers for Disease Control and Prevention survey. Also, keep in mind that America’s current generation of young (college to first seven years in the working world) people, the ‘echo boomers’ are the largest generation since the original Baby Boomers and have the capacity (at 2.3 children per female) to make a baby boom of their own.

Companies that produce goods and services aimed at the baby/young child market have suffered recently due to the decline in the birth rate, making some of them cheap/good buys right now. Take Summer Infant (NASDAQ: SUMR) as a prime example. The P/E is 6.97 and the valuation is close to the low-end of the 52-week range. The low valuation is due to the stock itself (i.e. investors are yet to identify the boom that will affect this stock) and not the company itself which has good cash flow from operations, robust revenue growth and mostly solid financial positioning with reasonable debt levels. This is a good example of a cheap buy with much potential as the market for their products expands in the coming years.

Given how families space out childbirths and the staggered start times among the individual participants, the next baby boom could last over 10 years. Now add five years of consumption of these company’s products and services to the tail end of the boom and these stocks could play well and pay well for 15 years or so. That’s a real buy and hold prospect in my book (figuratively, I don’t have a book as internet article lengths are about the limit of my writing stamina…). Carter’s Inc. (NYSE: CRI) has a P/E of 25 and a valuation near the 52-week high. This maker of baby clothes and other juvenile goods is in a strong position to capitalize on the coming baby boom.

For the record, I’m not recommending any baby food makers (Gerber, Earth’s Best Organic, etc.) as everyone (that’s not hyperbole, all of them) is owned by a massive mega-corporation with stocks that are affected by a wide-range of products and factors.

Yes, I know Disney (NYSE: DIS) isn’t much of a stretch here. But the company has had some ups and downs (see: Eisner, Michael) and currently resides near the high-end of its 52-week range. But the P/E is reasonable at 16 and almost no one in America raises a child without Disney products being involved.

Mattel, Inc. (NASDAQ: MAT) is currently doing well with a reasonable P/E of 16 and a valuation near the 52-week high. While there has been a slump in toy sales, a product that Mattel is known for, this company is still strong. MAT finds a place in this article as Mattel owns Fisher Price, one of the biggest names in baby and juvenile toys. Expect the baby boom to be good to Fisher Price and thus Mattel.

Finding companies that specialize in baby or juvenile durable goods, or are not privately held and have not been swallowed up by a mega-corporation that can’t be specifically recommended for this type of product or market, isn’t easy. Most baby goods companies have parent companies or are private. There are other possibilities besides those mentioned here, but not many. The coming rise in births will have undeniable economic impacts, something the wise investor always uses to an advantage.

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