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Demographics - Stocks that will most directly benefit from baby booms, aging, etc.


KinAlberta
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In past years I've made a few lists of companies that I thought were great or potential demographic plays.  Can people suggest companies today that they feel are good candidates for such a list?

 

My thinking has always been that aging baby boomers offer a near guaranteed sales increase for those companies with a great moat and a product that aging boomers will need such as funeral services. Kidney dialysis is another one. Robotics seems to have a demographic angle to it too. But it's not just serving the aging 1945-1965 baby boomers that could benefit a company. Today, here in Alberta we seem to have had a new baby boom the last few years.  Then there's other countries.  China softening it's one child standard may create benefits.  In terms of population dynamics, in-migration might also be a neat aspect to consider. Again, Alberta's population has booms and some companies have benefitted immensely from that population growth (which may now quite suddenly cease).

 

So what companies do you feel that there will be a near guaranteed growth opportunities available to them due to demographics?

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I've thought about this in the past also but was told 2 things by people more experienced than me. (This isn't a reflection towards you in any way, just my experience).

 

The companies or industries either already have the future priced in or don't pan out at all.

Usually the latter but sometimes that's a result of the former.  :)

 

 

 

 

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9628.JP is my japanese demographic pick, its the biggest funeral service company in japan in a very fragmented industry with an EV/EBITDA of just 3 and stable FCF generation over the last 5 years.

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/9628-jp-san-holdings/msg196526/#msg196526

 

But it looks like nobody is interested. :)

 

I am, thanks for the suggestion.  I am in need of a few, less-than-exciting positions to complement my roller-coaster ride in midstream oil/gas.  The death industry looks interesting to me...

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I think the best way to play this is through Managed Care Organizations (MCOs). Many government medical programs (Medical, Medicare, Obamacare) are distributed through private sector. There is no doubt demand is rising all over the world for medical services for the elderly, but supply will have trouble keeping up. There are only so many doctors and nurses and US is already pay 17% of GDP for it. So the trend is more and more of the money will go through MCOs because MCOs can most efficiently cap costs.

 

examples of MCOs: ANTM, Aetna, UnitedHealth etc

 

 

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I've thought about this in the past also but was told 2 things by people more experienced than me. (This isn't a reflection towards you in any way, just my experience).

 

The companies or industries either already have the future priced in or don't pan out at all.

Usually the latter but sometimes that's a result of the former.  :)

 

 

 

 

 

I concur.  Its all a waste of time.  Things never unfold as they are supposed to. 

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I've thought about this in the past also but was told 2 things by people more experienced than me. (This isn't a reflection towards you in any way, just my experience).

 

The companies or industries either already have the future priced in or don't pan out at all.

Usually the latter but sometimes that's a result of the former.  :)

 

 

I concur.  Its all a waste of time.  Things never unfold as they are supposed to.

 

Well, I don't think it predicting demographic trends is always a waste of time. Or else then you are saying the market is perfectly efficient, right?

 

I think it is true that reading too much into those trends can be harmful which is probably what the experience players are talking about. That is really just having too much confidence on some investment theory.

 

 

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Nothing wrong with buying something where the future is already priced in. It comes down to earnings quality.

 

Fully priced securities can be a good thing to own in case the future of most other stocks have had their futures overly priced in (something low interest rates, growing export markets, never ending housing market growth, deflation like Prem Watsa predicts, etc. can do). 

 

There's little to stop an aging population from aging and spending where it has to spend, however there are a lot of things that can stop a growing economy from growing and people spending where they are currently forecast to spend.  In this sense you'd want to own some of the surer bets.

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I concur.  Its all a waste of time.  Things never unfold as they are supposed to.

 

 

I think the trick is finding things where you have a different take on the "obvious."  Howard Marks calls this second level thinking.

 

The Brooklyn Investor blog had a great post on this awhile back on DaVita (DVA) http://brooklyninvestor.blogspot.com/2013/11/davita-healthcare-partners-dva.html

 

I think HLS is another name that is going to obviously benefit from demographics but it still cheap.  They operate free standing Inpatient Rehab Facilities (IRFs) which treat post-acute patients for things like strokes and other brain injuries.  The sell side sheepishly sticks to price targets close to today's trading price and talks about the risk of cuts to gov't reimbursements without realizing that HLS is by far the best player in the industry (~20% EBIT margins vs ~0-1% for most players).  When (not if) the gov't cuts reimbursement rates, the industry will be wiped out and HLS will pick up the pieces.  this is already happening as other IRF operators have been approaching HLS and asking them to JV and run their IRFs.  As Buffett has said, no matter the industry, the low cost provider always wins through a cycle.  It can just be difficult to look past the obvious (the reimbursement cuts) and look to the second level (that HLS will come out of the downturn stonger then ever.)

 

 

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I agree that generally these trends are priced in and speculative.  For me, this cuts too close to the first-level thinking of "investing in what is the future" for lack of a better phrase -- for example, how people discuss and bid up 3D printing or solar stocks.  It's not the same but close enough.

 

The most this mentality does for me is provide some added comfort that, at least I'm not in a melting ice cube.  AIQ comes to mind here: they will benefit from those demographic trends if they occur, but it is a sideshow to the central thesis.

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