Six Ways to Profit from the Mini-Baby Boom

Population growth is the lifeblood of all civilizations and societies. It is a carried promise of further development and prosperity in a nation. The U.S. is in fact in the midst of a mini baby boom and there are long term opportunities here for the looking. A record number of babies were born in the USA in 2007, according to early federal data that some demographers say could signal an impending baby “boomlet.”

In 2007, 4.315 million births were reported by the National Center for Health Statistics, giving us a glimpse of the growing lengthening trend in the US. This number would be a new milestone and record or the U.S. The last time the number was this high was in 1957, which coincidentally was in the middle of the “baby boom” years from 1946 to 1964. Demographers have been monitoring gradual increases in recent years; data for 2006, which won’t be made final until September, show a 3% increase over 2005. That’s the largest single-year increase since 1989.

“I suspect this is the beginning of a new kind of baby boom, although it’s going to be nowhere near the baby boom of the 1950s or ’60s,” says demographer Arthur Nelson of the University of Utah in Salt Lake City. “It will be sort of a boomlet.” Nelson attributes the 2007 numbers to a “perfect storm” of factors: more immigrants having children, professional women who delayed childbearing until their 40s, and larger numbers of women in their 20s and 30s in the population, keeping the fertility rate high. The average number of births per woman was 2.1 in 2006, the highest since 1971. For 8 years straight, the US has had a gradual increase of over 4 million births a year which has never happened before in its history and it doesn’t look to slowdown anytime soon.

There is a strong fundamental factor that is a characteristic of any powerful society and that is, it’s sacrifice to provide for their children above all else. “Companies that have a vested interest in all things babies will benefit,” says Ken Harris, of consulting firm Cannondale Associates. “Consumers, generally, tend to not skimp on their children,” Harris says, adding that this trend is true even in tough economic times. “Parents will trade down in other areas.” This mini-boom is an investable trend that could have long legs to it. Here are some long term ideas on profiting from it.

MARTEK BIOSCIENCE (MATK)

Anyone with a baby has probably heard of DHA and its ability as a dietary additive to enhance mental and visual development in infants as well as lowering cardiovascular risk. Its products include nutritional oils used in infant formula, nutritional supplements, and food and beverage fortification ingredients. This special additive is seen as a great product that plays into a parent’s promise.

MATK’s growth estimates of 55% for this year and 18.5% for next year really make it appealing. MATK has also beaten earnings estimates for the past 4 quarters and is not only going to reap the benefits from the US baby mini boom but has recently entered other global markets such as Russia and also Eastern Europe. It is important for these population driven industries to diversify its consumer markets globally.

Expanding its markets into emerging nations, if it makes sense, could drive future growth even if the US mini boom slows down. This would greatly enhance long term revenue growth but also provide more stable streams of revenue over time. MATK also has favorable stock characteristics such as a 32 million share float and a high short interest of 9.36 million shares comprising of almost 30% of the float. MATK fits the bill as a company to watch.

The Childrens Place Retail Stores, Inc. (PLCE)

This is one of my favorite baby boom plays. You just can’t get one shirt, you gotta get the whole outfit! Even during the recent economic downturn, PLCE has outperformed technically and fundamentally. I was going to write this article last week before PLCE had its earnings but unfortunately delayed it. PLCE handily beat its earnings estimates, bringing in 66 cents per share last quarter compared to analyst estimates of 48 cents per share.

“Our merchandise assortment for summer was very well-received by customers and our sharpened E-commerce marketing and merchandising efforts helped to drive web traffic and sales,” interim Chief Executive Chuck Crovitz, said in a statement. Cost cuts also helped boost the bottom line. When compared to Gymboree (GYMB), it seems PLCE is the better pick right now. Zacks likes it.

I like PLCE’s stock float at 21 million shares with a 20% short ratio and 5.3 million shares short.

Leap Frog (LF)

Leap Frog makes educational toys for children and it does good job of not only focusing on the fastest growing population segment with its Spanish speaking toys, but it constantly develops new products to sell in order to boost revenue growth.

CEO Jeffery Katz recently said on its earnings call that, “Sales for the quarter came in better than we expected due to strong and earlier-than-anticipated shipments of our new products. So far we’ve received excellent feedback and we are seeing strong sell-through at retail for Tag. Leapster 2 and Didj are just being introduced but early indications are promising, particularly at LeapFrog.com.”

Katz also talked about new product lauches in 2008 and for the next couple years:

We have two remaining launches left for the year — the LeapFrog Learning Path, which will debut in August, as I alluded to earlier; and Crammer, our study and sound system, which will launch in the early part of the fall. Later in the fall, we are going to share with you the details of how we expect our strategy to evolve in the coming years but for now, you should know that we have quite an extensive product plan laid out through 2009 and into 2010 and 2011. The first elements of this will be on display at Toy Fair in October.

I like LF’s stock float at 30 million shares with 8 million shares short and a 26% short ratio. LF has excellent expectations of EPS growth going forward turning this year’s loss estimated at -0.16 EPS into 0.42 EPS for next year.

Natus Medical Inc. (BABY)

BABY manufactures, and markets neurondiagnostic and newborn care products to healthcare professionals worldwide. BABY is growing through several small acquistions and has an excellent growth profile. EPS growth is estimated to be 48% this year and 23% next year. Quarterly growth year over year is at 62% and quarterly revenue growth is at 41%.

BABY has excellent stock characteristics with a 27 million share float, 16.2 short ratio and 3.6 million shares short. Other names to keep an eye on are GYMB and Disney (DIS). GYMB is a great children’s retailer that has been struggling a bit lately, watch for a turnaround. DIS is the owner of the Baby Einstein collection as well as the most famous of all children’s amusement park and infinite toys.

Stock position: None.

Comments

[igre:]

bought BABY 1 year ago. it was one of my best stock related decisions lately :)

2008 Aug 25 07:41 PM

[www.fillint...:]

Children practically run our economy as it is. This is a great reference for anyone who is looking for a last stock. Baby gifts will always be in demand.

Feb 04 05:03 PM