Hot Prospects

Is your portfolio ready for the millennium? These stocks will take you into the next century.

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December 1, 1996

This story appears in the December 1996 issue of Entrepreneur. Subscribe »

The boomers are coming! The boomers are coming! Unless you've been living under a rock for the past five years, you don't need Paul Revere to tell you that the largest demographic group ever to move through the U.S. population has begun its ascent to the retirement years. Some 77 million strong, boomers are setting trends in consumer spending, saving and investing. And with the first boomers turning 51 next year, the race is on for marketers to grab a piece of the action.

If you seek to determine what stocks will strengthen your portfolio as we head for the millennium, consider this age wave that holds the power of a Tsunami. To catch the wave, take a look at what the aging boomers will need and want, then research those areas as investment options. Here are some ideas to get you started.

High-Tech Heaven

Running With The Bulls

Invest or be left behind. This year and last were banner years for Wall Street, both for brokerage firms that deal with individual and institutional innovators, and for investment bankers who handle initial public offerings. The securities industry has benefited mightily from the market's volatility and high trading volume, as well as consumers' love affair with mutual funds. We have become a nation of savers and investors.

The pace of mutual fund sales remained impressive in 1996, even though total net sales slowed during the first two quarters. If the pace set in 1996 continues, it could eclipse the prior record, set in 1993, of $280 billion in net sales.

Impressive as that seems, weakness in the stock and bond markets for an extended period could cause a reversal of fortunes for investors. Instead, consider investing in financial services companies with broad product lines and recurring fee income generated from the sales of mutual funds and other managed accounts.

Both A Lender And A Borrower Be

Credit cards have increased sharply in popularity, with many consumers charging like the Light Brigade. As gas stations, grocery stores and a greater variety of merchants accept payment by plastic, issuers will continue to report solid earnings.

Although there has been an increase in credit card delinquency, many companies are acting quickly to cut their losses. Simultaneously, consumer and commercial lending is on the rise, and companies in these areas should benefit from an increase in the number of cash-poor borrowers with less-than-perfect credit ratings. These companies' stocks have shown high growth recently and may have good prospects for the next several years.

I Want My HMO

Quite a change from "I want my MTV," but an aging population will put more strain and more emphasis on health care. Soaring health-care costs have driven companies and individuals to managed-care facilities, not just to save a buck but for comprehensive care. Hospital management firms have reported strong earnings gains, reflecting growth in outpatient services, market share gains, acquisitions, expense reductions and lower labor cost inflation. Hospital management companies' valuations are below that of the Standard & Poor 500, making these stocks a good value for investors.

Continuing health-care industry consolidation will benefit hospital shareholders and should help cure investors of their concern over the negative impact of managed-care restraints and Medicaid reimbursement cuts. In the wake of last month's election, these stocks could have to contend with political battles over Medicaid and Medicare spending. This could create weakness and a buying opportunity in the shares of even the best companies. All in all, the prognosis for this sector is good.

Love Is Not The Drug

Baby boomers may still be romantic, but as old age catches up with them, more and more health problems will bring in more dollars. Both generic and brand-name drugs, and the pharmaceutical companies that manufacture and distribute them, stand to profit from the graying of America. Whether it's arthritis or an ailing heart, companies that provide balm for the aging will be sure to benefit.

As far as the cutting edge of medicine, Ralph Acampora, director of technical research at Prudential Securities in New York City, advises investors intent on focusing on the millennium to consider biotechnology. The latest in "designer genes" are full of "what ifs," says Acampora. "What if they find a cure for cancer? What if they discover something equally fantastic? These stocks have to be part of the future if you're thinking out 10, 15, 20 years."

Drink up!

Whether it's cola, bottled water, fruit drinks, sports beverages or ready-to-serve tea, beverages are hot business. Increases in soft-drink sales in both U.S. and overseas markets, hotter weather and increased health consciousness have made these stocks a tonic for thirsty portfolios.

As markets open in the Far East and India, sales should increase--and profits along with them. If you're looking for more stable buying opportunities, consider some of the more established companies in this sector as long-term buy-and-hold candidates.

Lights Out

These old stocks just ain't what they used to be. No longer are utilities the reliable old sawhorses that could see investors through the years, gradually increasing dividends as they increased power bills. Electric utilities have turned over a new leaf--one that's better for the consumer in the way of lower rates but offers less certainty for the investor.

If you still like these stocks, consider the best among them. Look for companies with increasing dividends and dividend payouts that are less than 80 percent of cash flow. If a company is paying out too much, a drop in rates could mean a drop in dividends and a potential fall in the stock's price.

While the future may look so bright you have to wear shades, consider this cautionary note: No matter what the industry or how good its prospects, the fortunes of individual companies will vary. Before you select a stock or industry for your portfolio, be certain to investigate it thoroughly to make sure it fits with your tolerance for risk.

Get information on any investments you may be considering by requesting a copy of the company's annual report. Several rating services, including Value Line Investment Survey and Standard & Poor's Stock Survey, provide opinions and additional information.