Stocks That Will Benefit From The Coming Population Boom

When the economy improves, so does the birth rate.  That’s why investors should try to be family friendly.

24/7 Wall St. has compiled a list of companies that cater to the wants, needs and desires of children and their parents who may benefit the most from a baby boom that could occur in the coming years if the economy grows as experts expect. The correlation between birth rates and the economy is strong. Parents — sensible ones anyway — do not want to bring children into the world that they can not afford to feed, clothe and educate.  When consumers are feeling good, they have more children.  They don’t when the economy is lousy. It’s that simple.

Returning veterans of World War II created the first Baby Boom in– more than 71 million people — whose pending retirements is creating a demographic time bomb the likes of which the United States has never seen.   Fast forward a few decades and there was a bump in the birth rate from about 1998 to 2007.   In, 2006 there were  4,265,996 total births recorded.  There were 4,317,119 registered in 2007, the highest number in U.S. history.  They began to decline one year later.

As numerous media reports have mentioned, the U.S. birth rate hit its lowest point in a century as people held off having children in the midst of the worst economic slowdown since the Great Depression.   As the economy slowly begins to improve, experts are expecting the birth rate to rise again.   A recent report by the United Nations projected that the world’s population will hit 7 billion in late October, less than two decades after reaching 6 billion.   The United States population continues to grow at a faster pace than many Western nations thanks to an influx of Latino immigrants, whose birth rates tend to be high.  This will not be as big as the famous Baby Boom because the nation is getting older .

Despite worries about gas prices, consumer confidence appears shaken but not broken.  In fact, it reached a 3 month high in May even as economists expect GDP growth to be slower than originally expected.    Many investors remain bullish as ever on U.S. stocks.  We even argued recently that it was not out of the question for the Dow Jones industrial average to top 13,000 with the next year.

24/7’s list of the Five Companies That Will Benefit From The Coming Baby Boom includes some familiar names such as Walt Disney Co.  (NYSE:DIS),  Viacom Inc. (NYSE:VIA),  Costco Wholesale Corp.  (NASDAQ:COST),  Family Dollar Co.  (NYSE:FDO) along  The Hain Celestial Group Inc.  (NASDAQ: HAIN).   Toy retailers, such as Amazon.com (NASDAQ:AMZN) and Toys “R” US Inc. will of course benefit, as will manufacturers such as Mattel Inc. (NYSE:MAT) and Hasbro Inc. (NYSE: HAS),  but we decided to look beyond the obvious names for our picks.

Here is the list in no particular order.

For generations of children,  a trip to a Disney resort has been a right of passage.  This remains the case today.  During the last quarter, the company’s Parks and Resorts revenues  increased 7% to $2.6 billion while operating income decreased 3% to $145 million, a fairly impressive figure considering the shaky state of the economy and the decline at the Tokyo resort caused by the Japanese tsunami.  Disney resorts also remain popular with overseas tourists lured by the dirt-cheap U.S. dollar.  Also, Disney retains an impressive roster of stars ranging from Mickey Mouse to “Drake and Josh” who appeal to kids of all ages.  There is no reason not to expect that to continue for years to come.  Also, these same small consumers grow up to watch ESPN or programs on the ABC network such as the family friendly hit “Wipeout.”

Viacom’s kid’s business gives Disney a run for its money.  Take “SpongeBob SquarePants.”  The cartoon sponge and his pals have been entertain audiences since 1999, an eternity for a kid’s show not named “Sesame Street.”   “SpongeBob” is now a valuable brand, whose likeness is plastered on everything from boy’s underwear to adult ties.   The program remains one of the most watched on cable.  Viacom’s Media Networks business generated  $2.08 billion in revenue in the last quarter, an 11% improvement over the prior year period.  Advertising revenue soared 12% worldwide.   Viacom also can move fans of “SpongeBob” to its raunchier fare such as “Jersey Shore.”  There is no reason not expect the hits to keep coming.

Travel to any Costco on the weekend and you will notice lots and lots of families.   The warehouse chain sucks people in with its low prices and enormous product sizes.  It keeps them by offering quality store brand products.   Lots of people are taking notice as well.   Fiscal second quarter sales rose 11%.   Costco has done a good job in capturing upper-inventory shoppers that have proven elusive to Walmart.  Shares of Costco are up 14% this year.

Family Dollar is another retailer that continues to eat Walmart’s lunch.  Its same-store sales were up an impressive 5.1% during the last quarter. It expects them to jump 5-7% during the third quarter.   For its part, Walmart’s same-store sales are expected to drop this quarter.   Family Dollar continues to expand. At the end of the last  quarter, it had 6,888 stores, up from 6,655 a year earlier.   The chain does a good job in providing quality merchandise in appealing stores.  Cost-conscious families have taken notice.

Parents of “Sesame Street” viewers know the name Earth’s Best organic baby food because of its sponsorship of the beloved children’s show.  What they might not know is The Hain Celestial Group Inc. , the company behind it.    The company is one of the biggest makers of natural food products ranging from herbal tea to frozen dinners.  Sales rose about 30% in the last quarter.  That should continue.  According to the USDA,  sales of organic food have grown steadily over the past decade yet only account for 3% of overall sales.  More parents are getting the message that kids need to eat right at a young age.

–Jonathan Berr