Gold and Golden Years

Visualize a pig passing through a python. That perhaps unpleasant thought helps to illustrate the influence the huge baby boom generation is exerting on the American economy.

As children, boomers went through truckloads of diapers and toys, and their large numbers required the construction of new schools. As teens, they inspired a surge in businesses, from music to soft drinks. As young adults, their spending sparked a boom in housing, furnishings and dozens of other sectors.

Now the oldest boomers have reached their early 50s, and many investors are making decisions based on the influence boomers seem likely to have on the economy in the next decades. Hundreds of companies stand to benefit from boomers’ nearing and entering retirement age.

Here’s a look at some promising picks in a number of industries:

* Long-term care. Because people spend more money on medical services when they are older, the aging boomer population is expected to have a major impact on the health-care business.

America’s over-65 population is expected to hit 40 million by 2010 and 53 million by 2020. That compares with 31 million seniors in 1990. Although medical advances have lengthened life spans, a great many boomers can be expected to become frail in their 70s, 80s and 90s.

That’s why investment advisor Fred Lynn of FAL Capital Management in Scottsdale, Ariz., believes companies specializing in nursing home and assisted-living care will be prime beneficiaries of the coming demographic trend. Assisted living involves help with bathing, dressing and other daily tasks and is less expensive than the skilled medical assistance typical of nursing homes. Among Lynn’s favorite companies in this field are Arbor Health Care (ticker symbol: AHCC), ARV Assisted Living (ARVI), Care Matrix (CMD) and Health Care & Retirement (HCR).

“In much the same ways baby boomers crowded movie theaters and highways in the ‘50s and ‘60s, they’ll crowd these places in the years ahead,” Lynn says.

Ken Kam, co-manager of the Interactive Technology Value Fund in San Jose, says his favorite company in the field is Mariner Health (MRNR).

* Medical equipment. Kam says the outlook is especially bright for companies developing new treatments, particularly those for heart ailments.

“Medical technology has found cures for most of the diseases that kill people when they’re young,” he says. “What often gets to people when they’re older is heart disease.”

One of his recommendations is CardioThoracic Systems (CTSI), which has developed a simplified procedure for heart bypass operations. It requires an incision of just 6 inches in the ribs--there’s no need to crack the sternum or stop the heart, both typical of bypass surgery today, Kam says. The new procedure also allows for a quicker recovery.

“The company’s growth is only limited by how fast it can train doctors to use this technique,” says Kam, whose fund was 1996’s top science/technology mutual fund performer, with a 61% gain.

Steve Barnes of Barnes Investment Advisory in Phoenix likes OrthoLogic (OLGC), a company that makes, among other things, a device that stimulates growth in bones with hard-to-heal fractures.

“The company has a broad line of products that address injuries or problems that become more prevalent as people age,” Barnes says.

* Financial services. When people reach their 50s, they tend to become more serious about investing, motivated by the realization that retirement is just around the corner. They also tend to have more money to invest, since by then the kids are grown and the parents are in their peak earning years.

In fact, many analysts say the increasing number of graying boomers has contributed to the rising demand for financial products that has been driving interest rates down and stock prices higher. And, as you might expect, the stocks of financial services firms are rising as well.

Ken Feinberg, co-manager of Davis Financial Fund, a Santa Fe, N.M., mutual fund that focuses on financial stocks, thinks this trend has 10 to 20 more years to run.

Feinberg’s favorite financial services stock is American Express (AXP). He’s particularly impressed by the company’s strength in financial planning. “It’s the envy of every brokerage firm,” he says.

Feinberg also likes Morgan Stanley Dean Witter Discover (MWD), for its broad involvement in investing through its recent acquisition of brokerage Dean Witter and other businesses, and Travelers Group (TRV), which owns the Smith Barney brokerage and has many insurance products.

Feinberg believes that an increasing percentage of older people in the population will help property-casualty insurers slash their claims-paying expenses and thereby become more profitable. “When we turn 50, we enter our safest driving years,” he explains. Davis Financial includes Allstate (ALL) and another insurer, Progressive (PGR), among its top holdings.

* Leisure. Not all people will retire wealthy, of course, but a great many will. These folks will be spending cash on entertaining themselves, says Mark Greenberg, who runs Invesco Strategic Leisure Portfolio, a mutual fund in Denver.

His favorites for a time of aging boomers include Hilton Hotels (HLT), Mirage Resorts (MIR) and MGM Grand (MGG), all of which have gaming operations. He also likes cruise ship operators Carnival (CCL) and Royal Caribbean Cruises (RCL). Many retirees like to vacation in style.

As a niche play, Invesco Strategic Leisure has taken a stake in Steiner Leisure (STNRF), a subcontractor that operates beauty parlors, spas and exercise facilities on cruise ships. It commands a whopping 80% of the market for ships that ply the waters around North America and the Caribbean. “It’s very unusual to find any company with an 80% share of anything,” Greenberg says.

Then there’s golf. Greenberg likes Golf Trust of America (GTA), which operates 14 upscale courses, primarily in the Southeast.

One of Greenberg’s less obvious demographic picks is a Swiss company called Tag Heuer, whose shares trade on the New York Stock Exchange (THW). The company makes expensive watches.

Although jewelry ads often feature models in their 20s and 30s, young people usually can’t afford costly watches, Greenberg says. “But if you’re 55 or 60 and the kids are out of the house and finished with school, you’re more likely to buy something like this.”