3 stocks for the 300 millionth American

By Jon Markman

Last week, the nation saluted the arrival of the 300 millionth American with much hand-wringing about the perils of immigration and a quickened birth rate.

But another equally important factor was overlooked: Due to healthier lifestyles, better food and a vast improvement in drugs that treat life-threatening illnesses, Americans are dying at a slower pace.

According to government statisticians, 2,393,343 Americans died in 2004, the latest year for which statistics are complete. That amounted to a death rate of 816.7 people per 100,000 in the U.S. population -- a whopping 3% less than the 841.9 per 100,000 rate of 2003. When statisticians adjust for the age distribution of the population, the rate was a record low 801 per 100,000, which was almost 4% lower than 2003.

Do you feel better already? All gender, race and country-of-origin groups are showing big decreases in their death rate. As you might expect, men still die at a faster rate than women: 955 per 100,000, vs. 680. Among gender and race divides, black men die at the fastest rate, at 1,258 per 100,000, while white women enjoy the slowest death rate, at 668. And there's great news for female Native Americans: They showed the best improvement, dying at a rate 4.9% lower than in 2003.

If our 300 millionth American wants to live a long time, government stats suggest that it would be best if he or she did not move to West Virginia, Alabama, Arkansas or Pennsylvania, as they are the states with the highest death rates -- 1,024 to 1,176 per 100,000. The best place to live a long life? Go to Alaska, where the pace of death is just 490 per 100,000, or Utah, at 570, or Hawaii, at 713. But to really beat the Grim Reaper, Mr. or Ms. 300 Million could head to the Northern Marianas, a U.S. protectorate, where the death rate is 186, or Guam, where it's 415.

The Metamucil portfolio?

You just know there has to be an investment angle here. Sell the funeral home providers? Buy old-age-home chains? Go long Geritol, and short the hearse makers? Yeah, sure, make fun. But there really are some practical reasons we're living longer and better, and it's a good idea to buy companies at the forefront of that paradigm shift.

To help the 300 millionth American live longer than the 200 millionth and 100 millionth American, who came along in 1967 and 1915, respectively, investors should tip their hats to the nation's great drug, agricultural and fitness companies. After all, they're making the medicines, selling the groceries and providing the exercise workouts that are making us much stronger and more prosperous than our grandparents, despite what you read about the epidemic of obesity and wage deflation.

Let me suggest investments in three undervalued companies that will help the 300 millionth American along their path to a full life when the 400 millionth American arrives in 2043.

Better returns through drugs

Genentech (DNA, news, msgs) is one of the largest and most successful biotech companies in the country, and has managed to achieve its success by being a good place to work as well as a great innovator. Biotech companies make money when they hire smart scientists, encourage them to do pioneering work and prevent them from heading to rivals or startups. This month, Genentech was named by Science magazine as the top employer and most admired company in the pharmaceutical industry for the fifth straight year. The result: Products that help people live longer.

Genentech learned this week that the Food and Drug Administration approved its blockbuster drug Avastin to be used in combination with two other drugs for the treatment of patients with the most common type of lung cancer. Approved first to treat colon cancer, Avastin works by starving the blood supply that feeds tumors. Its success is a miracle both of science and capitalism, as it has cost many tens of millions of dollars to develop. Showing the sort of heart for which it has been celebrated, Genentech also announced last week that it would initiate the nation's first program to cap the expense of Avastin to $55,000 per eligible patient. So the 300 millionth American won't fear being thrown in the poorhouse while being treated for cancer.

From an investment perspective, Genentech shares are currently moving out of a nice, long base just as the entire biotech sector is rounding back into favor. That's a nice combination. It's a decent value, too, trading for a price-earnings multiple on estimated 2007 results of around 29, despite growth that's likely to clock in at greater than 30%. The stock is trading now around $84, and I think it'll get to $100 by this time next year.

Whole portfolio

One company that is helping people avoid cancer by leading the revolution toward healthier foods is Whole Foods Market (WFMI, news, msgs), a $9 billion, high-end grocer based in Austin, Texas. Its large, gorgeous stores are examples of a certain genius: Executives have figured out how to lure customers away from lower-priced rivals by providing better service and food, as well as how to encourage them to spend more. In its recent earnings report, Whole Foods said it plans to grow at a 15% to 20% pace over the next few years, or just slightly slower than the past few years. But it tends to under-promise and over-deliver, so growth is likely to be at the high end of that estimate.

Whole Foods has fewer than 170 stores worldwide, so there is ample room for expansion. It has 14 stores in the pipeline at present, which is a record number. At the moment it's a bit richly valued, at 39 times 2007 earnings estimates, so if you buy now be prepared to buy more on any short-term setbacks. Trading now at $65, I think it will rise above $100 by late 2008, or a gain of 55% in two years.

Get physical

If the 300 millionth American has managed to keep cancer at bay and is eating lots of organic vegetables, the next thing you know he'll want to get into great shape. And a small, well-managed company that has great prospects in that field is Life Time Fitness (LTM, news, msgs). The small Minnesota company operates around 50 new-age, supersized athletic, family recreation and spa centers in suburbs mostly in the Midwest, and has tremendous opportunities for growth in other parts of the country. Think of it as a middle-class country club with organized sports for all ages in very attractive settings, and without the high-pressure salesmanship for which the fitness industry is notorious.

If you're looking for companies that can rise 10 times in value over the next five to 10 years, the best opportunities are in small, fast-growing, specialty retail chains that can duplicate a successful local strategy across the national stage, much as Starbucks (SBUX, news, msgs) advanced out of the Northwest or American Eagle Outfitters (AEOS, news, msgs) advanced out of Pennsylvania. Life Time has been growing at a solid 25%-plus clip since inception, and its managers are exceptional both at wringing a high return on their investment in new locations, raising prices, growing their membership base and delivering upside to their earnings guidance.

In 2006, the company has opened five new centers and it will open two more in December. It has also promised to open eight new centers in 2007, achieving a nice, steady 15% unit growth. If it keeps up this pace, which is not outrageous, and maintains capacity to achieve strong returns on invested capital, then shares, now at $49, should reach $100 by the end of 2009, or three years from now. It's a buy now and on dips ahead on any short-term valuation or execution concerns.

It's easy to look ahead on the life of the 300 millionth American as one that might be negatively impacted by wars, a decline in fossil fuel and federal budget deficits. But the more optimistic and likely view is that he or she will live to be nearly 80 with the benefit of new medicines, fresh food and lots of exercise. Add some smart investments, too, and their retirement in 2065 should be pleasant indeed.

Fine print

To feast on U.S. life and death statistics, visit the National Center for Health Statistics' Web site, run by the Centers for Disease Control. The Death and Mortality page is here. Stats are complete through 2003, and you can get preliminary data through 2004. Here's the report for death from injuries. The leading accidental cause of death is motor vehicles, at 44,065 in 2003. Next are firearms, at 30,242; poisoning, at 26,435; falls, 17,116; and suffocation, 12,791. These things make fascinating, if creepy, reading. Here are two factoids for you: The firearm-related homicide rate declines rapidly after the age of 35, while the firearm-related suicide rate begins to rise rapidly in the mid-to-late 60s. … To learn more about Genentech, visit its Web site. … Here's the Avastin page. The company's drugs Herceptin, Rituxan, Tarceva and Xolair are also key, so check them out, too. … Learn all about Life Time Fitness at its Web site. … Learn more here about Whole Foods. See if there's one near you. … Yes, Geritol does still exist. It's a multivitamin sold by GlaxoSmithKline (GSK, news, msgs) that was, at one time, heavily marketed as an all-purpose tonic for senior citizens.

Jon Markman is editor of the independent investment newsletters Strategic Advantage and Trader's Advantage. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jon.markman@gmail.com; put COMMENT in the subject line. At the time of publication, Jon Markman owned shares of Starbucks.