U.S. Markets closed

A Baby Boomer Basket of Stocks From Jeff Saut


During this festive time of year when the proverbial ''what to get the person who has everything'' question starts to be asked again, it only seems fitting that we seek investment ideas from our stable of experts and recurring guests. And what better place to start than with the plain spoken wisdom of Wall Street veteran Jeff Saut, a Michigan native turned Floridian thanks to his role as the chief investment strategist at Raymond James (RJF).

Maybe it's because he hails from a place that has nearly 50% more senior citizens than the national average, but it seems this southern gentlemen has the elderly on his mind. And why not? With an estimated 10,000 baby boomers turning 65 years old every single day now, it's a trend to be reckoned with. For Saut, obesity and diabetes are two niche markets within the broader health care industry that are set to see continued growth for years to come.

"A new report by the Mayo Clinic showed if you smoke in your later years, your health care costs go up by 20% a year, but if you're obese, your health care costs go up by 50% a year," Saut says in the attached video. As a result, two of his preferred picks on this theme can rightly claim their place in our Baby Boomer Basket.

DaVita Healthcare Partners (DVA) is a Denver-based kidney dialysis company that operates 1,900 outpatient clinics in 43 states as well as inpatient and laboratory services in hospitals, thanks to a recently completed merger with Health Care Partners. The stock is up about 40% so far this year with a market value just north of $10 billion. It is 73% buy-rated by the 15 analysts who cover it (including Raymond James) with a median price target of $125.50, which is about 18% above its current price.

DexCom (DXCM) is another Saut favorite. Shares of this billion-dollar, medical-device maker are up about 50% this year, and thanks to robust demand for its glucose monitors, the company is pegged to see its sales top $100 million next year. Two-thirds of analysts currently rate DexCom a buy with a $15.50 price target, and Saut likes the fact that their products can test blood using sensors rather than the more traditional finger-prick method. While older patients are a key part of the mix, pediatrics are too, Saut says.

Another trendy pick Saut thinks is worth a look is the cell phone tower business, simply because more and more users require more and more data, which in turn requires better and better service. Raymond James does not currently have recommendations in this industry, but American Tower (AMT), Crown Castle (CCI) and SBC Communications (SBAC) are all well-known players in this business, with stock prices that are up 25%, 50% and 60% respectively year to date. "The tower stocks are like owning real estate in the sky. If you want more bandwidth, you hang another tower" Saut says.

Another trend amongst the retirement set that can't be ignored is their need for income-producing investments, particularly those that offer a growing stream of income that can offset inflation. One of Saut's favorites right now is Raynoier (RYN), a $6 billion timber and pulp-making company that pays a 3.5% dividend that Saut says "has risen 33% since 2009 and was just bumped higher again buy double digits about two months ago." Since the trough in 2009, the stock has gone from $15 to $50. Raymond James is one of eight firms that follows the stock (''strong buy''), and the average price target is $53. He sees the company as a derivative play on the red-hot home building stocks/sector, and he particularly likes their pulp operations which he says "produce the highest and purest cellulose on the planet."