Sure, millennials are the trendy crowd these days. But that doesn’t mean your stock portfolio can’t profit from investment trends tied to aging baby boomers.
Boomers, born between 1946 and 1964, range in age from 56 to 74 now. And just because they’re getting older, doesn’t mean they don’t still carry clout.
There are more than 71 million boomers; only the millennial generation is bigger. Boomers are also the wealthiest generation. And if you follow the money – i.e. what the baby-boom generation spends their money on – you’re likely to find investment opportunities.
Money is made by profiting from big societal trends. The aging of the U.S. population is a big one. So is “aging in place.” Virtual medicine is fast-emerging as a big business, too. And don’t forget about new pharmaceuticals that keep hearts beating longer and blood sugar levels steady. The “humanization of pets” trend is also gaining in popularity, as is replacing a cranky knee, digital payments and keeping in touch with grandkids via social media. Fixing up the house remains in style, too, especially for aging homeowners who one day may need a home in-care specialist.
What do all these trends have in common? They intersect with the lives and spending habits of aging baby boomers.
Baby-boomer expenditures drive sales and profits of publicly traded companies. Below, is a sampling of stocks and funds that would fit into a so-called “baby boomer” portfolio.
Home in on health care
The most obvious beneficiary of an aging population is health care companies, says Daniel Wiener, chairman of Adviser Investments
“It’s all about the baby boomers wanting to live longer, more active lives,” says Wiener. “Boomers are replacing knees and hips. They’re taking drugs to reduce their cholesterol and control their diabetes. The health care industry is rife with opportunities.”
Three are a few ways to invest in health care: Buy individual stocks or funds exposed to a diverse group of health care companies.
Investors not comfortable trying to identify the individual pharmaceutical company to come up with the next big lifesaving drug or the most profitable medical device maker, for example, can invest in funds that own a broad basket of health care stocks, says Wiener.
One way is to invest in a low-cost, broadly diversified index-focused fund like Vanguard Health Care ETF (symbol VHT). But if your goal is to own the best health care companies with the most growth potential, Wiener advises buying a fund managed by a portfolio manager that specializes in picking potential winners.
“Why not let a smart active manager decide which stock and which subsector of health care are the best ones to own,” Wiener says.
Still, there’s no shortage of stocks poised to profit from the aging boomer trend. All boomers will be 65 or older by 2030.
Sel Hardy, an analyst at research firm CFRA who covers drug manufacturers and managed care stocks, says health insurers will benefit from the emerging telemedicine trend, as well as greater usage of health care by aging Americans.
Insurers like Anthem (ANTM), Centene (CNC) Humana (HUM), and Molina Healthcare (MOH), she says, will benefit from “lower costs from telemedicine.” Virtual appointments are viewed as a key component of preventative care that will result in fewer patient visits to the doctor’s office and emergency rooms.
Big drug companies like Merck (MRK), Pfizer (PFE), Johnson & Johnson (JNJ) and Eli Lilly (LLY), Hardy adds, are also well-positioned, given their large footprint of drugs that treat cancer, diabetes and heart disease.
“A major part of their revenue stream is in oncology, diabetes and cardiology, disease areas that impact a large segment of the baby-boomer population,” Hardy says.
Pfizer and Johnson & Johnson are also racing for a COVID-19 vaccine. If successful, a vaccine creates another potential revenue opportunity, given the sheer numbers of vaccinations that will be needed, especially for older Americans who are at greater risk of dying from the coronavirus. Similarly, Eli Lilly is working on treatment options for the coronavirus that could boost sales.
Profit from ‘humanization of pets’
Increasingly, people are treating their pets, well, like people. The “humanization of pets” trend is driven in part by baby boomers. Over the past decade, this generation is the only age group to have seen an increase in their pet ownership rate, rising from 50% to 54% between 2008 and 2018, according to market research firm Packaged Facts.
And the shelter-in-place-driven isolation caused by COVID-19 has resulted in a rise in pet ownership among boomers, who are now spending more time with their animals and viewing them like companions, says Richard Bodzy, lead manager of Putnam Growth Opportunities Fund.
“Whether it’s a case of the kids moving away to college or having more free time at home, pet ownership has increased a lot in the baby-boomer demographic,” says Bodzy.
And as pet ownership rises, so does the need for pet care. That’s why Bodzy is bullish on IDEXX Laboratories (IDXX), which provides diagnostic testing equipment to veterinarians. Preventative testing of pets is on the rise, he says.
Another stock benefiting from this trend is Zoetis (ZTS), a company that makes medicines, vaccines and vitamins for animals, including companion animals, Hardy says. “We’ve seen the trend accelerate,” she says.
Tech stocks aren’t just for millennials
Tech, the hottest segment of the stock market this year, isn’t only benefiting from gadget-loving millennials. Nearly half (46%) of baby boomers older than 65 keep in touch with grandkids, children and friends via Facebook (FB), according to Pew Research Center. The use of Facebook by this older age group has more than doubled since 2012, Pew says.
Baby boomers are also moving away from cash and using contactless payment systems more as the digital economy takes root, e-commerce grows and health concerns related to Covid-19 persist, says Putnam’s Bodzy.
“A lot of services we historically thought were more geared to millennials are increasingly applicable to baby boomers as they age,” says Bodzy.
One stock benefiting from this trend is Paypal (PYPL), the digital payment company. The company added a record 21.3 million new accounts in its fiscal second quarter, and it expects to add 70 million new accounts in fiscal 2020. The biggest chunk of new customers, Bodzy says, are aged 45, 50 or older.
And don’t count out the COVID-19 success story Zoom (ZM), the video communications platform that enables remote fact-to-face interactions. Boomers can stay in contact with their kids or grandkids in real time virtually.
“It’s about wanting to stay in touch,” says Wiener.
Talking doctors via telemed technology
The telemedicine trend is getting buy-in from baby boomers who value the option of talking to a doctor and getting prescriptions prescribed without leaving home. It’s more convenient and less expensive than a visit to the doctor’s office, and it also reduces the chance of contracting COVID-19 while traveling to appointments. Telemedicine, which once was used mainly for basic diagnostics and dermatology, is now seeing wider uses, adds CFRA’s Hardy.
The acceptance and penetration of virtual medicine, which is offered by companies like Teladoc Health (TDOC), has been accelerated by the COVID-19 health crisis, but is expected to become a commonly accepted way of interacting with doctors, says Putnam’s Bodzy.
Other baby boomer plays
The aging-in-place trend will boost the need for home improvements, which makes a stock like Home Depot (HD) attractive. It also benefits stocks like home health care provider LHC Group (LHCG).
Once-popular baby boomer investment plays, such as cruise lines, airlines and resorts, have been hurt by travel restrictions and health concerns related to COVID-19 and will likely take time to fully recover, says Stephen Dover, head of equities at Franklin Templeton.
“Travel is likely to be curtailed for the next year or two and it remains to be seen what the longer-term effect will be,” says Dover, adding that people, including baby boomers, “will have to feel more secure” before resuming their regular travel plans.
