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 railroads -- have held up fairly well. For early investors in companies such as Genesee & Wyoming
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. Just consider what's happened with energy stocks over the past few months. They were the darlings of the market when oil was at $140 a barrel, but oil prices have since moderated, as have the share prices of many oil-related companies like Apache
While railroads could continue to do well in the short term, the unfortunate truth is that you've already missed the boat on the trend. Chasing after it 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 are 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 Abbott Labs, Sanofi-Aventis
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. In 1999, it turned the medical equipment industry, traditionally led by the likes of Boston Scientific
Another segment of the health-care market sure to become more popular is home health care. Not only do people generally prefer being home versus being in a hospital, but it's also a lot cheaper than lengthy hospital stays. Two players in this arena are Almost Family and Gentiva Health Services.
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 drugmakers to home health care. A decade from now, these will be the stocks you'll wish you'd bought right now.
Finding these stocks before the market does, however, presents a challenge, so it's important that you stay current 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 more than 500%, and Vertex Pharmaceuticals is up 220%.
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This article was originally published July 8, 2008. It has been updated.
Todd Wenning is deeply saddened that his beloved Cincinnati Bengals are again the worst team in the NFL. He does not own shares of any company mentioned. Genesee & Wyoming is a Motley Fool Hidden Gems pick. Intuitive Surgical is a Rule Breakers selection. The Fool owns shares of Stryker. The Fool's disclosure policy is light and lively.
