Before you dismiss the last point as fluff, consider that the biggest productivity boom (and consequently the biggest drop in inflation) in the lifetimes of anyone reading this article came in the early 1980s, as the baby boomers were in the early stages of their family formation cycle. Yes, Fed monetary policy under Paul Volcker had a lot to do with the drop in inflation. But don’t underestimate the long-term effects of the baby boomers getting haircuts and real jobs on productivity growth.
Generation Y’s peak birth year was 1990. The average age of mother at first birth is around 26 years … which is a number that continues to rise due to would-be mothers staying in school longer and getting a larger share of advanced degrees.
So, doing a little math here, we can add 26 to 30 years to 1990 and come up with an estimate for a boom in new mothers peaking in the years 2016-2020.
All babies are roughly equal in terms of demand for staple items like formula, diapers and clothes. But first babies are more economically significant than their later siblings because they are the ones that force their parents’ lifestyle change. If I may oversimplify a little, they are the reason we buy homes and furnish them.
What are we to do with this information?
You could buy shares of infant formula makers such as Abbott Laboratories (ABT) or Mead Johnson (MJN), of course. Though being global companies, these companies tend to be as affected by births in China as births here in the United States. And you also could buy shares of diaper producers such as Procter & Gamble (PG) and Kimberly-Clark (KMB), though the same logic applies.
For more direct exposure to an American baby boom, consider buying a portfolio of starter homes with a goal of eventually selling out to a Gen Y family in a couple years. Or better yet, consider starting a new business that caters to new mothers and their kids.
You want some examples of low-hanging fruit? How about a website with product reviews of strollers, cribs and other baby products with an online store that links to a major retailer like Amazon (AMZN)?
Or better yet, a handyman service for assembling baby gear to save fathers like myself hours of late nights of cursing and reading undecipherable instruction manuals upside down.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, Sizemore Capital is long ABT, MJN, PG, and KMB. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar but also which stocks will deliver the highest returns. The series starts November 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.