Investing in Trends - from Smartmoney.com

SmartMoney
Published March 25, 2009
Screens by Jack Hough

7 Stocks for 10-Year Holders

Stock screening software is handy for sorting cheap shares from pricey ones and determining which are recently rising. But it can’t tell which companies are neatly aligned with long-term societal trends. That means a search for stocks to hold for the next 10 years strays necessarily from the comfort of cold calculus to the gray of human judgment.

Still, I hope you’ll find the following points noncontroversial. For each, the computer has helped find some promising stocks—modestly priced ones attached to prosperous companies.

1. We’re getting old.

About 13% of Americans are 65 or older. By 2030, more than 20% will be, reckons the Census Bureau. The old spend less than the middle-aged on lots of things, but healthcare isn’t one of them. Four in five seniors have a chronic health condition like high blood pressure and diabetes, and half have two or more such conditions. Pills and prescription plans seem like good bets, but a greater role for government in coming years might crimp the profitability of either or both.

Companies that put paper medical records on computer networks, thereby saving money and improving results, seem more assured of growth. San Francisco-based McKesson (MCK1) is North America’s largest drug distributor and a leading provider of information technology to hospitals, insurers and government health-care agencies. Its sales are growing nicely through the current recession, and its shares fetch less than nine times forecast earnings for the company’s fiscal year ending March 31.

2. We’re still fat.

Beyond fat, really: The obese, at 34% of the population, now outnumber the merely overweight, at 33%, according to the National Center for Health Statistics. I suppose that favors purchases of plenty of ordinary things in larger sizes, like pants and airplane seats, but the companies mostly likely to gain from these — Wal-Mart (WMT2) and BE Aerospace (BEAV3) — are more affected by other trends. Kinetic Concepts (KCI4), based in San Antonio, makes vacuum-assisted systems for healing difficult wounds, like skin ulcers associated with diabetes, which is itself associated with obesity. It also makes specialty hospital beds, including ones that accommodate oversized patients.

Optimists might prefer to invest in diet plans and exercise. Companies that offer both are cheap right now; shares of gym chain Life Time Fitness (LTM5) and diet programs Weight Watchers (WTW6) and NutriSystem (NTRI7) trade at 8 to 9 times earnings. Weight Watchers is the best diet plan, according to ConsumerSearch.com, which amalgamated opinions from a variety of sources, including Consumer Reports and The Journal of the American Medical Association. With budgets tight, sales for Weight Watchers are seen declining 9% this year, and those for NutriSystem are seen falling 14%. Life Time is growing sales, mostly because it is opening new clubs, not expanding sales at longstanding ones. NutriSystem, unlike the others, is debt-free, and it offers the plumpest dividend yield: 5.3%.

3. A house bubble has popped, but has left plenty of houses.

Prices are down 27% from their mid-2006 peak, according to S&P’s Case/Shiller index, last reported in February for December. But houses built during the frothy years — from 2000 to 2007 the number of housing units swelled 10% while the population increased less than 7% — remain. Not all are cared for; a record one in nine are vacant. Assuming prices will eventually find a level where buyers will move in, our huge housing stock will need plenty of paint and lawn care in years to come. Sherwin-Williams (SHW8) leads the nation in paint sales, makes most of its money from touch-ups on existing houses, and has increased its dividend each year since 1979. Current yield: 3.2%. Shares are 14 times earnings. The Scotts Miracle-Gro Company (SMG9), true to its name, is increasing sales in what seems like an unlikely setting. Shares sell for just under 15 times earnings, but those earnings are expected to grow by double-digit percentages this year and next. The dividend yield seems in need of a spritz or two of growth spray, at just 1.5%.

Screen Survivors Company Ticker Price P/E Yield
McKesson MCK10 36.27 9 1.4
Kinetic Concepts KCI11 19.78 6 n/a
Lifetime Fitness LTM12 11.28 7 n/a
NutriSystem NTRI13 14.14 9 5.3
Weight Watchers WTW14 19.35 8 3.7
Sherwin-Williams SHW15 50.2 14 3.2
The Scotts Miracle-Gro Company SMG16 33.97 15 1.5


1http://www.smartmoney.com/quote/MCK/
2http://www.smartmoney.com/quote/WMT/
3http://www.smartmoney.com/quote/BEAV/
4http://www.smartmoney.com/quote/KCI/
5http://www.smartmoney.com/quote/LTM/
6http://www.smartmoney.com/quote/WTW/
7http://www.smartmoney.com/quote/NTRI/
8http://www.smartmoney.com/quote/SHW/
9http://www.smartmoney.com/quote/SMG/
10http://www.smartmoney.com/cfscripts/director.cfm?searchstring=MCK
11http://www.smartmoney.com/cfscripts/director.cfm?searchstring=KCI
12http://www.smartmoney.com/cfscripts/director.cfm?searchstring=LTM
13http://www.smartmoney.com/cfscripts/director.cfm?searchstring=NTRI
14http://www.smartmoney.com/cfscripts/director.cfm?searchstring=WTW
15http://www.smartmoney.com/cfscripts/director.cfm?searchstring=SHW
16http://www.smartmoney.com/cfscripts/director.cfm?searchstring=SMG

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