New Life in Death Care

Great news for the living! Funeral home operator Alderwoods Group (Nasdaq: AWGI  ) reported a dip in revenues last year caused by a 6% decline in funerals performed. Don't worry, mortal shareholders -- there's a silver lining or two in there for you, too. Fiscal 2004 actually included one week less than the previous year.

There is quite a bit more to like about Alderwoods, once you get beyond the notion of buying into the death industry. Sure, it gives me the heebie-jeebies to read things in an earnings press release like "our results were also impacted by a very strong flu season in December 2003 which did not reoccur in 2004." But if you're not going to give Alderwoods a break because it's a job that somebody's got to do, take a peek at the numbers.

Alderwoods is profitable. It earned $0.23 a share last year on $717 million in revenue. Since being singled out in our Motley Fool Hidden Gems newsletter back in October 2003, the stock has risen 68%.

There's also a transformation taking place at Alderwoods -- and it's not as creepy as you might think. The company has been selling off some of its funeral parlors and cemeteries and using the proceeds to pay down its debt. That's a dramatic improvement from the debt-heavy Alderwoods that eventually turned to bankruptcy as the cruelest of all exit strategies.

Second only to Service Corp. International (NYSE: SCI  ) in death care, Alderwoods has been showing healthy growth in its insurance and pre-need funeral and cemetery contracts.

While funeral providers don't seem to get a whole lot of love from Wall Street -- rivals Carriage Services (NYSE: CSV  ) , Stewart Enterprises (Nasdaq: STEI  ) , and Service Corp. International all currently trade in the single digits -- it's definitely an area worth looking into. It's a steady niche, obviously, and companies like Alderwoods are finding new ways to lock in future business with pre-need contracts. The prettier Alderwoods' balance sheet becomes and the further it distances itself from bankruptcy (it filed for reorganization in 1999 as Loewen before re-emerging as Alderwoods three years later), the more life there is in this compelling bear-proof turnaround stock.

Some recently departed headlines:

• Alderwoods unearthed a solid third quarter as well.
• Check out some of the other winners in our Hidden Gems newsletter service.
• Death isn't the only way to Rule Your Retirement.

Longtime Fool contributor Rick Munarriz knows that death is inevitable, but he does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.