Here’s How to Bet on a Baby Boom
My second daughter was born on April 16th. Immediately, I was back in baby-mode. However, unlike most new parents, I see everything through a stock-colored lens.
First we were posting pictures to Facebook (FB). Then we were buying diapers from Amazon (NASDAQ:AMZN). We were stocking up on organic baby foods from Annie’s (BNNY) and Hain Celestial (NASDAQ:HAIN).
As an investor, none of these companies offer a pure-play bet on the core trends tied to the population of babies. Then a gift arrived at the door: a super cute outfit from Carter’s (NYSE:CRI). Ah, Carter’s! Carter’s is 100% levered to babies and very young children. Therefore, whenever there’s a rise in this demographic, Carter’s is your play. (Conversely, if there’s a decline, shorting or puts are equally relevant.)
We never invest in companies without a reasonable risk-reward ratio. So, even if Carter’s satisfies our investing CHEAT SHEET investing framework variable “T = Trends Support the Industry in which the Company Operates“, we still want to make sure the financials are clean. In this case, Carter’s is a bit pricey on the valuation side. They also carry a reasonable amount of debt, which violates our screen “E = Equity to Debt Ratio is Close to Zero”. However, all other profitability metrics such as operating margin (9.12%) and return on equity (14.68%) are solid.
Given the company’s stability on the finance side, this is a safe stock to ride significant trends in the baby population. So, although I wouldn’t be chasing Carter’s higher at these levels, it’s definitely one to put on your watch list for any meaningful changes in birthing statistics.
Now that you’re up to date on babies, read why YOU WERE WARNED: Groupon Could be the Worst Public Investment EVER.