Investing in a Touchy Subject

 | Mar 05, 2013 | 6:00 PM EST  | Comments
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Stock quotes in this article:

che

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amed

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gtiv

I've written periodically about investment opportunities in the preventive and corrective health care sectors, which are made possible by baby boomers' desire to stay as young as possible for as long as possible, and the necessity by some to avoid corrective health care because it's just too darned expensive.

Eventually, though, nature catches up with all of us, and our time to pass arrives. The industries and companies associated with this part of life -- hospice, funeral homes, cemeteries and the like -- have typically not been available for investors to participate in through publicly traded stocks.

It's been a taboo subject and industry, mostly because investment bankers have been worried about damage to their reputations that may arise from appearing to be callous and uncaring death profiteers.

That is beginning to change, however, and there will likely be more opportunities in the future if Chemed (CHE), Amedisys (AMED) and Gentiva Health Services (GTIV) attract investor attention.

All three companies have large and growing hospice care segments and associated services for final stage of life care.

Of the three, Chemed is the largest and best known, but even this company's market capitalization is only about $1.5 billion. Amedisys and Gentiva have market caps of only about $350 million each.

Chemed is the only one that has performed positively in the past several years, moving from a post-2008-crisis low of $35.30 in March of 2009 and climbing pretty steadily since to a current stock price of $77.60. It's also the only one of the three that pays a dividend, at just under 1% currently.

During the same time period, though, Gentiva and Amedisys originally nearly tripled within a year of their early 2009 lows, but they have since reversed and sunk to even lower lows today.

Gentiva is trading at $11.40, compared with a 2009 low of $13.80, and Amedisys is at $11.56, compared with a 2009 low of $26.41.

The performance of Chemed, however, is probably more reflective of death as a growth sector, and it's logical that the stock prices of Gentiva and Amedisys will be pulled up as their revenues increase and the investing public becomes more aware that the aging and eventual passing of the baby boomers provides a massive and inevitable clientele and financial benefit to these firms.

Although this is only an anecdotal narrative, the story is strong, and there are few other opportunities for investors to participate.

The small size of these companies will preclude institutions from participating, and it also means that the sector is primed for a roll-up strategy in which a large company is created through the merger and acquisition of several smaller, industry-related companies.

That's how Waste Management (WM) was created. I have no information that indicates that such a move is being considered here, but the end-of-life industry has no large regional or national players.  

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