Sell Block: Kicking Nana to the Curb?
Here’s an investing theory that at first glance may make sense:
The number of Americans age 75 or older will increase by 20% in the next 10 years, compared with 14% in the previous decade. Therefore, buying stock in nursing homes should net a healthy profit.
Unfortunately, that theory could not be more wrong. Despite what you may think, nursing home – or senior living community – stocks are a play on real estate, and not demographics. And since we’re in the middle of a housing crisis, investors shouldn’t go anywhere near this group, Cramer said.
Need proof? Brookdale Senior Living, the largest operator of nursing homes in the U.S., has dropped to $16 from $48. Sunrise Senior Living has fallen to $19 from $41. Both companies can attribute their losses to the same problems plaguing the homebuilders: too much capacity and not enough demand.
Between 2004 and the end of this year, Brookdale will have increased capacity by 50% and Sunrise by 25% – and both are still growing.
The housing bust is also keeping potential clients out of senior living, as many are waiting to sell their homes before they go. And we all know how bad the market is right now.
Plus, the AARP said that stock-market losses are forcing a third of Americans 65 or older to continue working. They don’t yet have enough money for retirement.
For all these reasons, Cramer said he doesn’t see a bottom in Brookdale or Sunrise until there’s a bottom in housing. So these stocks are in the Sell Block for the foreseeable future.
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