What the Boom Will Do in 2010

Baby boomers, as all of us born between 1946 and 1964 know very well, constitute the most important generation of the most important country on the most important planet in the most important universe in all of history.

Call us narcissists, but you have to admit that we've always been the focus of attention of marketers, journalists, politicians and psychologists. And even as we get old (our vanguard starts turning 60 in a couple of years), we will "remain the most influential segment of the population."

So, at any rate, says a fascinating new 68-page report on the implications of the state of the post-World War II baby boom for investors in the year 2010. The report is called "The Next American Dream," and it's issued by Citigroup Global Markets. This is not some dry tome, ruminating on sociology and economics. It's got stock tips.

The most persistent investment cliche about baby boomers is that, as they start retiring, they will pull their money out of the stock market. Because of this decreasing demand, stock prices will fall and keep falling, so you should start moving into bonds and cash right now. The Citigroup report throws cold water on this hoary hypothesis. Baby boomers plan to keep working and earning longer than their parents, they are remarkably good savers, and they have embraced the "equity culture."

The stock-to-bond shift is only one of the myths that the report challenges. For example, the authors, Edward Kerschner and Michael Geraghty, write that "poorly positioned industries" for retiring baby boomers "include some surprises such as large pharmaceutical companies, jewelry retailers, bookstores, and traditional mortality protection insurers."

What are the well-positioned industries?

Before you get the answers, you need to understand the Citigroup thesis. It goes like this: As baby boomers age, "their mind-set and attitudes" will change, too. Their goals are to be "healthy, wealthy and active," but there will be a "gap between these aspirations and reality." And within that gap, excellent stock-buying opportunities will emerge.

Take health. Sixty percent of people ages 45 to 54 say they are "concerned about trying to stay in shape," compared with 37 percent in 1994. But just 12 percent of boomers say they have attained their goal of "adopting a healthy lifestyle" and fewer than half are doing anything about their weight.

Instead of discipline and sacrifice, boomers see drugs and cosmetics (and cosmetic surgery) as the way to health, or the appearance of it. As a result, says the Citigroup study, "many boomers find themselves in the paradoxical situation of living an unhealthy lifestyle and taking a handful of drugs to remain active."

Still, Kerschner and Geraghty are dubious about pharmaceutical stocks. They see the large drug companies as caught between pressure to hold down prices from new health savings accounts (HSAs) and competition from generics and imported medicines. I am not sure I agree, but I'm intrigued by the Citigroup list of companies "well-positioned to benefit" from boomer trends in health. Among them: