Profiting From the Mini Baby Boom

 | Dec 08, 2011 | 12:00 PM EST
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Earlier in the week, I previewed my mini baby-boom investment thesis, and I received some perplexed responses to that  column. People born between 1946 and 1964 are generally considered to be part of the Baby Boom generation -- after World War II, the country experienced a pronounced spike in birthrates. By the end of the 1940s, approximately 32 million babies were born as opposed to 24 million in the 1930s.

Yet, as this group of the population enters their retirement years, all the talk in investment land is skewed toward how to profit from them. Dollar stores will benefit as their stores are closer to home and tap into retirees' need to be frugal (or are attractive to those who are working beyond expected retirement) post the Great Recession of 2008.

Online merchants will benefit as this group loses its mobility but wants to enjoy the fruits of their hard labor (say by showering their grandchildren with gifts). Even cruise line operators will join in, offering an easy way to visit faraway places at a reasonable price. The potential for investing off the baby boomers almost seems limited only by one's own imagination.

Another group of consumers to consider is made up of the men and women who have been serving in the military. Many of our troops are finally arriving home from a war that has gotten buried under the headlines of the subprime mortgage bust, a stock market rally that began in March 2009, a deeply divided Washington DC, and, of course, two years of watching Europe's financial train wreck unfold. As an American, I feel it hurtful  to see the war placed on the backburner because it mitigates the sacrifices that our men and women in uniform have made.

Yet those who have forgotten those sacrifices that have occurred minute-by-minute on the ground now have the opportunity to profit from it via the stock market (as if the continued freedoms that each and every one of us enjoys daily aren't enough of a profit).

  • As of June of this year, the U.S. had 101,000 troops in Afghanistan.
  • 10,000 U.S. troops will have left Afghanistan in 2011, with another 23,000 set to arrive back by the end of 2012 (there are 8,000 or so U.S. troops left in Iraq).

Nobody is discussing the themes that are taking shape from troops coming home because it's a longer-term thesis that gets lost in the dizzying array of day-to-day financial headlines . But you should dedicate a portion of your portfolio to a long-term investment -- provided the macro thesis is strong and the company is not a fly-by-night operation that has a stock trading on the pink sheets.

I have other related ideas on this troop arrival theme, so stay tuned. In the meantime, I wanted to profile retail as a way to play this theme, and specifically, Bed Bath & Beyond (BBBY) because this chain has two solid businesses that will benefit.

The company is the go-to destination for affordable housewares of all kinds; the affordable component compared with strong brand name products is an important consideration with the tight budgets of service member families. Additionally, the company operates what is arguably the mecca for baby products: Buy Buy Baby. Given the heft of the namesake brand, the children's-oriented chain plays second fiddle in the Bed Bath & Beyond investment thesis, but it's a chain that management is putting more capital behind (with many new store openings). Therefore, the company is set up to be a continued share gainer in housewares plus a new entrant to many markets in the U.S. for baby products, and, accordingly, a share gainer from local or other chain merchants.

As I mentioned earlier, it's vital to select a fundamentally solid company when doing these longer-term type investments. Not only does Bed Bath & Beyond have share-consolidating brands, but it has one of the best, most liquid balance sheets in all of retail. And these are combinations not typically found in the sector.

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