The Stocks You'll Wish You'd Bought

It's either the best of times or the worst of times.

Even though the market averages have been getting beaten up, a few sectors -- like energy and agriculture -- have surged. For early investors in companies such as Energy Conversion Devices (Nasdaq: ENER  ) and Mosaic (NYSE: MOS  ) , it's been a great year!

For the rest of us, though, the past 52 weeks have been downright miserable. But the biggest mistake an investor can make at this point is to chase performance, hoping the energy and agriculture boom has a little more gas left in the tank (pun intended).

While those sectors could continue to do well in the short term, the unfortunate truth is that you've already missed the boat on those trends. Chasing after them like a kid who missed the school bus will only compound the problem.

On the other hand, now's the perfect time to think about how you can profit from the next big wave.

Hang 10, Big Kahuna
Rather than speculating on events that may or may not happen, I offer you one trend that's sure to happen -- the aging of the baby boomer generation.

I know, it's not a groundbreaking statement. But amid the spectacular rise of energy and commodities over the past few years, we may have forgotten about the fact that 78 million Americans born between 1946 and 1964 are rapidly approaching (or already in) retirement.

This is going to have a tremendous impact on our economy, and especially the health-care industry. According to the National Coalition on Health Care, Americans spent $2.3 trillion ($7,600 per person) on health care in 2007, representing 16% of GDP – and by 2016, health-care spending is expected to balloon to $4.2 trillion, representing 20% of GDP.

Put simply, people will be spending trillions of dollars more on health care over the next 10 to 30 years. That's a trend you just can't afford to miss.

How to take advantage
I know, you probably expect me to predict that big-pharma names like Pfizer (NYSE: PFE  ) , Johnson & Johnson (NYSE: JNJ  ) , and Merck (NYSE: MRK  ) will emerge victorious because of the graying of the baby boomers, but I'm not.

No, the biggest winners from this phenomenon will be those companies who turn health-care innovations into necessities for the throngs of boomers. As Joseph Coughlin, the director of the Massachusetts Institute of Technology's AgeLab, noted in 2005:

Those [health-care institutions] who are going to change the system are those who say, "Why can't we provide service from the drug store or even the grocery store? Why do we have to go to the doctor's office?"

As investors, then, we should be on the lookout for forward-thinking companies seeking to make health care -- among other things -- cheaper, easier to understand, more efficient, and less insidious.

One example is Motley Fool Rule Breakers pick Intuitive Surgical (Nasdaq: ISRG  ) . In 1999, it turned the medical equipment industry, traditionally led by the likes of Medtronic (NYSE: MDT  ) and St. Jude Medical, on its head with the introduction of the da Vinci system, a robotic device that allows doctors to perform more exact micro-movements during surgery. That translates into improved survival, less pain, shorter recovery time, and reduced hospitalization costs -- all important things for any patient.

Tune in and turn on
Tomorrow's big health-care winners have a strong wind at their back as baby boomers begin to retire. They'll come from a variety of sub-industries, ranging from medical equipment to biotechnology and from drug makers to home health care. A decade from now, these will be the stocks you wish you'd bought right now.

Finding these stocks before the market does, however, presents a challenge, so it's important that you stay up on medical news journals and pharmaceutical research reports.

If that doesn't sound like a groovy way to spend your free time, consider a free 30-day trial of Rule Breakers -- where Fool co-founder David Gardner and his team of analysts do all the dirty work for you. Many of their picks reside in the health-care industry, and they've found some good ones -- Intuitive Surgical is up 466% and Vertex Pharmaceuticals is up 224%.

To see what they're recommending now, as well as all of their past picks, click here.

Todd Wenning hopes everyone had a wonderful July 4 holiday weekend. He does not own shares of any company mentioned. Pfizer and Johnson & Johnson are Motley Fool Income Investor selections. Pfizer is also an Inside Value pick. The Fool's disclosure policy is light and lively.


Read/Post Comments (4) | Recommend This Article (66)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 08, 2008, at 3:33 PM, rocket22man wrote:

    I agree completely on Intuitive Surgical and other opportunities in healthcare. But I think it's way too early to write off alternative energy. On the contrary, we're still working toward liftoff, and it's still some way off. Certainly the quick money has been made already, but this is an area of vast potential.

    Consider: of the roughly 85 million bpd of oil consumed worldwide, perhaps 3/4 is used for energy, the other 1/4 as a raw material. So there are roughly 64 million bpd of energy that will eventually need to be replaced by "alternative energy sources". At approximate 620 kWh generated per barrel of oil, that's about 1.6 terawatts of continuous generating capacity. And that's just today's usage, and it doesn't include natural gas and coal, which will also be supplanted, though to a lesser degree.

    So, what technologies will we use to generate those terawatts? Probably some wind, some solar, some nuclear, some -- whatever? Who will be the long-term winners and losers I can't say. But that's a lot of capacity. The long-term growth is inevitable, for economic reasons as well as save-the-planet ones.

  • Report this Comment On July 11, 2008, at 4:44 PM, AARACH wrote:

    CDC CORPORATION (CHINA) SHOULD HAVE BEEN IN YOUR--

    "The Stocks You'll Wish You'd Bought"

    LIST.

    BEEN SITTING AT $2.40 LEVEL FOR SEVERAL WEEKS.

    ALL THEIR PROBLEMS ARE BEHIND THEM NOW.

    LOOK FOR CONTINUED QUARTERLY REVENUE INCREASES OVER THE NEXT 2-3 YEARS.

    FUNDEMENTALS ARE STRONGEST AMONG ITS PEERS.

    HAD LARGEST DROP IN SHORT INTEREST OFANY STOCK TRADED A/O JUNE 30th

  • Report this Comment On July 14, 2008, at 2:18 PM, carbonates wrote:

    "While those sectors could continue to do well in the short term, the unfortunate truth is that you've already missed the boat on those trends."

    As an active investor in the energy sector I completely disagree with this assessment. The sector as a whole may have mixed results going forward, but there are many mid-size independents poised to become majors in the next few years. Paradigm shifts within the oil and gas industry are leaving some companies in the dust while others are adding reserves faster than they can drill. Many of these companies have the potential to double in value in the near future. I see even more potential in many of the small independents, the trick is picking the right ones, and that just comes down to understanding the sector.

  • Report this Comment On December 10, 2008, at 7:33 AM, larryg350 wrote:

    What is your take on Visa for 2009?

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