This article brought to my attention by a good friend:
Paine Webber strategist sees best buys
in what boomers like
Trends can make stock picking easy
By Dana Canedy
NEW YORK TIMES NEWS SERVICE
October 11, 1998
Edward M. Kerschner has seven television sets in his home on Long Island. His
refrigerator is stocked with Snapple, Coca-Cola and Hellmann's mayonnaise. And
he brushes his teeth with Crest.
That might be more than you wanted to know about Kerschner, Paine Webber's
chief investment strategist, but his buying habits reflect the trends that are
influencing his stock picks.
As he and other baby boomers age, says the 45-year-old Kerschner, the attitudes
of the largest, fastest-growing, wealthiest segment of the population have changed
-- and those changes are affecting what boomers spend on everything from soft
drinks to vacations.
He says the trends, outlined in a recent Paine Webber report, "The New
Millennium American," provide tremendous opportunities for certain business
segments and companies that satisfy the new demands.
Kerschner's thinking goes like this:
With most of their material needs now satisfied, boomers today place more value
on experiences than on tangibles. That represents a vast change in consumer
behavior.
He also says that peeking into the refrigerators, closets and minds of boomers, to
discover what they are buying and how they spend their time, offers insights into
the long-term trends that drive product and service choices.
In turn, that allows for superior stock-picking by helping to identify the
companies that best serve boomers.
Trend watching
These consumers, now settling into middle age and beginning to think ahead to
old age, are the ones who will drive corporate prosperity for years to come.
"If you're right about the trends, the stock-picking is easy," Kerschner says of
this thematic investing approach. "I mean, they become obvious."
What are the trends that can make companies, and their investors, wealthy?
Based on a study Paine Webber commissioned from Gallup and polls of consumer
behavior conducted by Yankelovich Partners, the brokerage firm identified five
trends and some of the businesses that should benefit by catering to boomers.
Kerschner calls the first trend "cradle-to-grave entrepreneurialism."
As Kerschner describes it, it's a hodgepodge of trendlets: people taking over
responsibility for their retirement through 401(k)s, more people working for
smaller companies, people changing jobs more often and taking it upon
themselves to get business training.
And more people want to keep working after retirement age.
The trend of lifelong entrepreneurial workers, Kerschner maintains, will benefit
businesses whose products either are suited for the home office or aid the
entrepreneurial life by helping people do their own taxes, investing and the like.
Staples, the office supply company that keeps small companies and home offices
running, is a prime example. Kerschner forecasts that its earnings per share will
grow about 30 percent annually in the next five years.
Breakneck speed
The next trend, "the time drought," is centered on his observation that people's
to-do lists are growing at breakneck speed -- so much so that even "spare time"
becomes stressful.
Today, for example, it is common for people to simultaneously drive a car, listen
to the radio, conduct a phone meeting and receive a fax.
Kerschner thinks this sort of time management overload is a huge plus for
companies like Gap, Procter & Gamble and Tiffany & Co. Why? Their trusted
brand names save time by making shopping easier.
Kerschner estimates that Gap's earnings per share will grow 18 percent annually
in the next five years and that those of Procter & Gamble and Tiffany will grow
13 percent and 17 percent, respectively.
Another trend is something Kerschner calls "the no-service/full-service"
economy. Middle-market companies, like retailers, are finding it impossible to
provide much service to the masses at a reasonable price because of a tight labor
market.
And most people are learning to do without service, either by shopping the
Internet or by frequenting retailers that offer efficiency and good value. That
should be a plus for companies like Wal-Mart and Bed, Bath and Beyond.
Paine Webber estimates that earnings per share at Bed, Bath and Beyond will
grow 28 percent annually and those of Wal-Mart about 14 percent annually in the
next five years.
The big Internet beneficiary, he says, is America Online, where consumers can
buy everything from jeans to Jeeps. He projects 50 percent annual growth in its
earnings per share over five years.
But a bifurcated economy is developing, as the carriage trade -- including many
of the stressed-out, time-starved consumers that Kerschner identifies in "the time
drought -- is demanding more service.
That will benefit retailers known for their service, including Nordstrom, whose
earnings per share Kerschner sees growing at 15 percent a year over the next five
years.
He likes the retailer for its willingness to raise customers' hemlines on demand or
ship a product across the globe in the name of superior service.
Kerschner also believes in what the report describes as "the new drug culture" --
boomers' penchant for using drugs to "fix things." Think Pfizer's Viagra.
Better-for-you products
The study concludes that because of that trend, boomers are attracted to
"better-for-you" consumer products, too. That explains the rise in demand for
herbal supplements, hair growth medication and prescription diet pills.
In general, drug giants like Schering-Plough, with a projected earnings growth
rate of 14 percent a year for the next five years, should benefit by being in a
market that serves an increasingly aging population.
The strategist also sees growing demand for what he calls "stressless leisure."
Boomers, Kerschner says, want more fun with less effort as they age. By this way
of thinking, donkey rides down the Grand Canyon are out and cruises are in.
More than 90 percent want "relaxing" vacations, the survey says.
Companies that could capitalize on this trend include Delta Air Lines, whose
earnings per share Kerschner expects to grow 12 percent a year in the next five
years, and Carnival, which he sees growing at a 17 percent pace.
Kerschner also likes Four Seasons Hotels, where overworked, stressed-out
boomers can turn for rejuvenation. He expects its earnings per share to grow at a
20 percent rate.
Some of these trends, of course, represent rather touchy-feely thoughts by Wall
Street standards and are certainly debatable.
Even so, Kerschner, a mathematician by training, is paid to be right. And he is
convinced that studying what he calls "shared life experiences" of certain groups
instead of traditional business cycles is a sure way to pick a stock winner.
No easy predictions
That is not to say he doesn't look at price-to-earnings and debt-to-capitalization
ratios. He simply prefers to factor in emerging trends than to reflect on past
patterns and behavior.
"The street typically analyzes historical patterns and says, 'Oh, it's happening
again,' " Kerschner says. "Historically, analysts look at the past to predict the
future, but in this case, the past is not going to predict behavior because of shared
life experiences" that change from generation to generation.
"I remember gas lines. My parents remember bread lines," he says, adding that
those benchmarks, in part, set the tone for each groups' political and marketplace
priorities.
Not everyone agrees with all of Paine Webber's conclusions. One marketing
expert says she agrees with the drug-culture concept and has no problem with the
work-beyond-retirement claim, but she questions the assumption that boomers
wanted stressless leisure.
"We are seeing much more exotic vacations," says Cynthia R. Cohen president of
Strategic Mindshare, a marketing and management consulting firm in Miami. "Do
you know how many people are going on safaris?"
Boomers, she says, are more concerned than ever with their golf scores and
"upset that they can't shoot hoops the way they used to."
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