Four ways to play the baby-boom effect
From the hippie generation to hip replacements, this cohort has had a huge impact on the economy.
NEW YORK (FORTUNE) - Whatever the macroeconomic impact of our aging population, baby-boomers will continue to have a big influence on a wide array of industries.
Health care is the most obvious, given the increasing medical needs that come with age, but travel, financial services, and technology will also be affected. Picking stocks based on that notion is a tricky proposition - demographic forecasts might already be priced in, or the effects on a particular company might be murky. The key, investing pros say, is to zero in on solid stocks with good fundamentals that should benefit from larger trends. These four companies all fit that profile.
As boomers complete the transition from the hippie generation to hip replacements, the leading maker of reconstructive orthopedic implants,Zimmer Holdings (Charts), should benefit. Shares have slumped of late, hurt by concerns about pricing and reimbursements.
"That certainly knocked the stock, but it's pretty well incorporated now," says William Sterling, author of Boomernomics and chairman of boutique investment-management firm Trilogy Advisors. Shares now trade near a 52-week low, for less than 16 times forward earnings.
And with new products ready to hit the market, such as a knee implant for women, Zimmer looks to be a business with "very good fundamentals and very good demographics," Sterling says.
Travel and recreation
Boomers aren't likely to spend their retirement years sitting in a rocking chair. Instead, surveys suggest they'll continue to seek out remarkable experiences - whether on cruise lines, in recreational vehicles, or at hotels and gambling tables.
That could help Harrah's Entertainment (Charts) come up aces. With 40 casinos, Harrah's is the largest gaming company in the world and provides the type of safe excitement boomers will be looking for, says Edward Kerschner, chief investment officer at Citigroup Investment Research. The stock trades for 19 times forward earnings and offers a 1.9 percent dividend yield.
With their kids out of the house and college tuitions paid off, boomers are expected to put their energy and dollars into improving their homes. That should include new spending on personal technology, and demand for flat-screen TVs is expected to grow sharply in coming years.
That bodes well for Corning (Charts), which dominates the market for those screens, says Robert Turner, chairman and chief investment officer of Turner Investment Partners in Berwyn, Pa. The stock trades for about 18 times projected 2007 profits, and Turner says it should grow earnings at a 15 percent annual clip.
"It's probably the one stock we sleep easiest with at night. Everybody's going to continue buying these TVs, and [Corning is] going to get its fair share."
As they enter the next phase of their lives, boomers will need plenty of help navigating their financial course. That bodes well for firms such as Nuveen Investments, T. Rowe Price, and Credit Suisse Group (Charts).
Mike Ryan, head of wealth-management research at UBS, cites Credit Suisse, with its strong international footprint and attractive asset-management business, as a favorite. It trades for less than 13 times 2006 earnings and carries "an added bonus," Ryan says, in the form of a healthy 4.1 percent dividend yield. Whether they're preparing for retirement or not, investors everywhere can appreciate that.