Halloween is Christmas for those that love the macabre. In that spirit, we present 13 potential stock picks that seem right for the Day of the Dead. They are ranked in each category by market capitalization. Not on the list, but in the neat-to-know category, Amazon (AMZN) has been quietly muscling in on the casket business via its partnership with Bestpricecaskets.com. At press time, it was offering about 50 different models at significant discounts -- close to 75% --- from the list price.
The Physical Remains
Services Corporation International (SCI) is a major player in the so-called "death care" sector. The $3 billion market cap firm owns more funeral homes, cemeteries, and crematories than any other company in North America. Since its acquisitions of Alderwoods and Keystone North America, it boasts holdings of 1,712 funeral homes and 490 cemeteries. The company sells "cemetery property internment rights" for mausoleum spaces, lots, and crypts. It handles burial openings and closings, and also manufactures caskets, vaults, and urns.
Hillenbrand (HI) sells 45% of the caskets in the United States, some 800,000 per year, through its wholly owned subsidiary Batesville Casket Co. In addition, the company sells cremation urns. Hillenbrand has diversified significantly beyond its core business of casket-making in recent years. Its Process Equipment Group runs K-Tron, Rotex, and TerraSource Global, which are all companies making or servicing industrial products. When its acquisition of Germany's Coperion Capital, a privately-owned industrial products company, closes at the end of this year, the business done by the Process Equipment Group will make up about two-thirds of the company's revenue. Hillenbrand has $1.31 billion in market cap.
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Matthews International (MATW) makes the bronze plaques that go on caskets, urns, and headstones. The $841.64 million market cap firm's specialty is laser engraving images on headstones. In addition to its specialized laser work, the company has been innovative -- and environmentally conscious -- regarding the disposal of bodies. In August, it won approval to be the first "alkaline hydrolysis unit" in the state of California. The process, dubbed Bio Cremation, uses 95% water and 5% alkali instead of direct flame and fossil fuel to "reduce human remains" and destroy "pathogenic microorganisms found in human remains." Interestingly, the idea came from Scotland, which does not allow Bio Cremation, but Florida does. Matthews International provided the equipment to the Anderson-McQueen funeral home in Florida, which was the first home to offer the service. According to Florida's Sun Sentinel, "The departed is placed in a container that looks like a cross between a washing machine and a bank vault. Cranked up to 350 degrees, the mix dissolves the bodily remains. The cycle is completed in the time it takes to watch a long movie. The bones are removed and ground before being placed in an urn."
UK-based Dignity (DTY) operates 616 funeral locations throughout the UK and 35 crematoria in the UK and Scotland. This company is not affiliated with the "Dignity Memorial Network" of 16,000 funeral, cremation, and cemetery providers in the US and Canada. In September, Franklin Templeton Investments, a division of Franklin Resources (BEN), acquired sufficient shares of the $825.13 million market cap firm to become a beneficial owner, with 5.40% of the company's voting rights. Dignity is in the Franklin World Perspectives Fund and was cited in a letter to investors as one of the funds' two best UK contributors.
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Stewart Enterprises (STEI), the second largest death care provider in the US, is known for how efficiently it manages funerals and burials. One source said the average funeral home performs 110 to 150 burials per year while Stewart performs about 265 to 320 burials per year per location. The $699.3 million market cap company owns 218 funeral homes and 141 cemeteries (48% with funeral home onsite). The company is not only efficient in death care, but in document retention. As a direct result of Hurricane Katrina -- during which tens of thousands of documents at the company's New Orleans Records Management Center were submerged for over a week, costing the company $1.5 million in recovery and restoration expenses -- the company began digitizing its records. To quote a Stewart Enterprises support manager discussing the project, "With cemetery records, record-keeping is literally eternal."
StoneMor Partners (STON) is the second largest cemetery provider and third largest death care provider in the US. According to its most recent SEC filing, it owned or operated 272 cemeteries, and 71 funeral homes. However, the same day as this SEC filing, the company announced it had completed an acquisition that appeared to add eight funeral homes, four cemeteries, and two cremation facilities to its portfolio. StoneMor is the only publicly traded death care company structured as a master limited partnership, or MLP. (For more information on MLPs, see Mastering the MLP Domain.) In another distinction, it switched its listing from the NASDAQ to the NYSE last December. Interestingly, five of the $467.35 million market cap company's senior managers all worked for the Loewen Group, another company in the funeral space, which filed for bankruptcy in June 1999 and has the dubious distinction of being a case study in bad management taught at the NYU Stern School of Business. (Loewen's assets were acquired by Alderwoods Group, which in turn was acquired by Services Corporation International.)
Carriage Services (CSV) operates 163 funeral homes and 32 cemeteries in the US. The $185.25 million market cap company is a major provider of pre-paid funerals and burials, allowing customers to choose their grave site, casket, and level of service at funerals. According to the Carriage Services website, the company's theme for 2012 is "A New Beginning." It has acquired 13 funeral homes and one cemetery in the last 12 months. [Editor's note: Together, Services Corporation, Stewart Enterprises, StoneMor, and Carriage Services provide only 20% of the death care market share, according to S&P. The rest of the industry is composed of small, local competitors, typically family-owned funeral homes where the funeral director is also the embalmer.]
The Body Parts
Bone and connective tissue product manufacturer Osteotech was acquired by Medtronic (MDT) in 2010, making the parent company an even larger player in the "regenerative biologics" business. Body parts of the recently deceased including skin, bones, and tendons are frequently used as transplants for living patients. According to one estimate, the sum of a cadaver's parts can be worth over $200,000. One body can save the lives of up to eight people and enhance the lives of more than 50 people, estimates the Red Cross.
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Interestingly, until 2005, the Red Cross was one of the nation's largest organizations that specialized in tissue gathering and distribution of bones, skins, and veins. That year, assets of the American Red Cross Tissue Services Unit were sold to the Musculoskeletal Transplant Foundation (MFT), which was then and still is the nation's largest tissue bank. Heart valves (mitral, aortic, pulmonary, and tricuspid) gathered by organizations such as the MFT often find their way to the heart valve experts at Edwards Lifesciences (EW), which in turn distribute them to hospitals treating patients with cardiovascular disease.
For financial contact with a "real" spirit, consider Vail Resorts (MTN). The $2.1 billion "mountain, lodging, and real estate" holding company has in its portfolio a New Mexico-based haunted resort, La Posada de Santa Fe. A former mansion, the resort frequently fields reports of sightings of the original lady of the manor, a wealthy recluse who rarely left her bedroom after a personal tragedy. The mysterious spirit has been seen by staff and guests, and has been featured on Unsolved Mysteries and Weird Travels. Yes, her bedroom, Suite 100, is open to the public.
They're back! Psychic Friends Network (PFNI), a staple of 1990s late-night and cable infomercials, is back and upgraded for the revolution in technology. This year, the company is relaunching the original brand on a technology platform that capitalizes on the latest social media and video technologies. Today the $30 million market cap company provides on-demand psychic advice by connecting professional live psychic readers with customers via telephone, video, voice, and text chat.
The Haunted Houses
Cedar Fair (FUN) is an amusement park operator that each year transformed several of its properties into haunted houses (or islands, as the case may be). At the Kings Dominion, near Richmond, Virginia, "evil spirits" have taken over the park with zombies "and other twistedness that will haunt you and your friend's dreams." Or at least, that's what was promised by a company press release. The "2012 Haunt" event will feature more than 450 monsters, "10 blood-curdling mazes, six trembling scare zones, six frightful shows, and more than 20 of our thrill rides in the foggy, dark of night that will leave you quivering with fear." Cedar Fair, which has a $2 billion market cap and operates 11 amusement parks, seven water parks, and five hotels, will also host "Haunt V" at Dorney Park in Pennsylvania, which will feature a similar blood-curdling experience. Interestingly, like StoneMor, Cedar Fair operates as an MLP, which is unusual as the structure is dominated (80%) by companies in the energy industry.
Glu Mobile (GLUU) is the maker of Boo Town and Haunted Manor games for smartphones and tablets. The "freemium" puzzle-adventure games are free to download but feature a robust monetization strategy based around in-app purchasing of virtual currency. For further frights, the game offering also includes Blood & Glory and Contract Killer: Zombies. Last week, one of the $225 million market cap company's insiders, Hany Nada, founder of GGV Capital, bought more than $9.9 million worth of stock (not options) on the open market. (For a "live" version of a haunted house videogame, Comcast's (CMCSA) Universal Studios Hollywood is featuring a Haunted Castle based on the horror videogame franchise.)
The Halloween "season" officially runs from October 31 to November 2 each year. But it's really just a state of mind, isn't it? There's no reason not to have a piece of it in your portfolio year round.
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