Hot prospects: is your portfolio for the millenium? These stocks will take you into the next century

Entrepreneur, Dec, 1996 by Lorayne Fiorillo

The boomers are coming! The boomers are coming! Unless you've been living under a rock for the past five years, you don't need Paul Revere to tell you that the largest demographic group ever to move through the U.S. population has begun its ascent to the-retirement years. Some 77 million strong, boomers are setting trends in consumer spending, saving and investing. And with the first boomers turning 51 next year, the race is on for marketers to grab a piece of the action.

If you seek to determine what stocks will strengthen your portfolio as we head for the millennium, consider this age wave that holds the power of a Tsunami. To catch the wave, take a look at what the aging boomers will need and want, then research those areas as investment options. Here are some ideas to get you started.

* HIGH-TECH HEAVEN

If you own a computer, network your machine with others in your office, or plan to do business on or through the Internet, you're already on to an important trend. Computers are here to stay, and those who invest in companies in the computer services and networking sectors should see solid growth into the year 2000 and beyond. Larry Wachtel, senior vice president and market analyst at Prudential Securities in New York City, sees technology as a dominant field. "Networking will supersede PCs," he predicts. "Look for ways computers can be linked together." Wachtel also sees promise in companies that provide ways to get on or exploit the Internet. "Internet browsers, content producers - these kind of companies look good."

But anyone who has ever watched the vicissitudes of computer stocks with awe and perhaps trepidation knows that here, one of Wall Street's axioms, "Buy them when no one else wants them," is a key to success. A slowdown in retail PC sales, plus falling revenue growth in the first half of 1996, contributed to the disappointing earnings reports from several major companies. As a result, tech stocks declined sharply in July, taking most of the rest of the market with them. Good reports from chip makers gave tech stocks a major boost in the third quarter, but the ups and downs could give any investor vertigo. Be wary of loading up on technology as it climbs to a new high; prudent investors may want to wait for a pullback before investing.

Although the immediate future may look murky, after the recent industry collapse, profits should improve. If your time frame is three to five years or more, a number of PC and computer networking stocks look attractive. Consider buying on weakness and price drops, but bear in mind that because of their unpredictability, these stocks are not for the faint of heart.

* RUNNING WITH THE BULLS

Invest or be left behind. This year and last were banner years for Wall Street, both for brokerage firms that deal with individual and institutional innovators, and for investment bankers who handle initial public offerings. The securities industry has benefited mightily from the market's volatility and high trading volume, as well as consumers' love affair with mutual funds. We have become a nation of savers and investors.

The pace of mutual fund sales remained impressive in 1996, even though total net sales slowed during the first two quarters. If the pace set in 1996 continues, it could eclipse the prior record, set in 1993, of $280 billion in net sales.

Impressive as that seems, weakness in the stock and bond markets for an extended period could cause a reversal of fortunes for investors. Instead, consider investing in financial services companies with broad product lines and recurring fee income generated from the sales of mutual funds and other managed accounts.

* BOTH A LENDER AND A BORROWER BE

Credit cards have increased sharply in popularity, with many consumers charging like the Light Brigade. As gas stations, grocery stores and a greater variety of merchants accept payment by plastic, issuers will continue to report solid earnings.

Although there has been an increase in credit card delinquency, many companies are acting quickly to cut their losses. Simultaneously, consumer and commercial lending is on the rise, and companies in these areas should benefit from an increase in the number of cash-poor borrowers with less-than-perfect credit ratings. These companies' stocks have shown high growth recently and may have good prospects for the next several years.

* I WANT MY HMO

Quite a change from "I want my MTV," but an aging population will put more strain and more emphasis on health care. Soaring health-care costs have driven companies and individuals to managed-care facilities, not just to save a buck but for comprehensive care. Hospital management firms have reported strong earnings gains, reflecting growth in outpatient services, market share gains, acquisitions, expense reductions and lower labor cost inflation. Hospital management companies' valuations are below that of the Standard & Poor 500, making these stocks a good value for investors.

Continuing health-care industry consolidation will benefit hospital shareholders and should help cure investors of their concern over the negative impact of managed-care restraints and Medicaid reimbursement cuts. In the wake of last month's election, these stocks could have to contend with political battles over Medicaid and Medicare spending. This could create weakness and a buying opportunity in the shares of even the best companies. All in all, the prognosis for this sector is good.