Stocks for newborns: Carter's dresses up a portfolio
Bet on the buying needs of new parents.
One in a special Top Stocks series on buying stocks for newborns.
My second daughter was born on April 16, and immediately I was back in baby mode. However, unlike most new parents, I see everything through a stock-colored lens.
None of these companies, however, offers a pure-play bet on the buying needs of new parents. Then a gift arrived at the door: a super cute outfit from Carter's (CRI). Ah, Carter's! The company is 100% dedicated to babies and very young children. Therefore, whenever there's a rise in this demographic, Carter's is your play. (Conversely, if there's a decline, shorting or puts are equally relevant.)
We never invest in companies without a reasonable risk-reward ratio. So, even if Carter's satisfies our Cheat Sheet investing framework variable T -- trends support the industry in which the company operates -- we still want to make sure the financials are clean.
In this case, Carter's is a bit pricey on the valuation side. It also carries a reasonable amount of debt, which violates our screen E -- equity-to-debt ratio is close to zero. However, profitability metrics such as operating margin (9.12%) and return on equity (14.68%) are solid.
Given the company's stability on the finance side, this is a safe stock to profit from baby demographics. So, although I wouldn't be chasing Carter's higher at these levels, it's definitely one to put on your watch list for any meaningful changes in birthing statistics.
Damien Hoffman is the co-editor of Wall St. Cheat Sheet Premium Newsletter. As of this writing, he did not own a position in any of the aforementioned stocks.
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While they don't know when it will burst, they do recommend looking to Europe if you want a safer bet.
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