Baby 'Boomlet' Gives Birth to New Opportunities

The pitter-patter of little feet and the high-pitched cries of infants may seem louder lately, but it's music to the ears of many companies that cater to infants and children.

Last year, more than 4.3 million babies were born in the US - the largest number in a single year - according to the National Center for Health Statistics.

Although the 3 percent increase over 2006 falls short of a double-digit percentage to be considered a true baby boom by demographers, the rising birth rate is significant enough to provide a growing customer base for manufacturers and merchants.

“Companies that have a vested interest in all things babies will benefit,” says Ken Harris, of consulting firm Cannondale Associates.

“Consumers, generally, tend to not skimp on their children," Harris says, adding that this trend is true even in tough economic times. "Parents will trade down in other areas.”

Analyst Paul Hickey of Bespoke Investment Group is tracking companies that he expects to profit from the influx of newborns, particularly those that focus on clothing, education, and healthcare for children.

Stocks he likes includes neonatal and infant diagnostic equipment company Natus Medical , which is growing through several small acquisitions, as well as Martek Bioscience , the patent-owners of an active ingredient in baby formula. Martek also is expanding into baby food products and pregnancy supplements.

LeapFrog , the educational toy company, also is another favorite among children-related stocks. They will be launching a new line of products for the holiday season, including a pen tool that helps children read.

“Basically with all three of these names what we want to look for is, not only companies that can benefit from the growth in births, but also companies that have growth traits because of new product launches,” says Hickey. (For more on Hickey's picks, watch the accompanying video.)

The baby boom may also create new rivalries. In a bid to broaden their franchise, Kimberly-Clark , the maker of Huggies diapers, and Procter & Gamble , the maker of Pampers diapers, introduced skincare and toiletries for infants and toddlers a few years ago. These products have been gaining strength in a segment of the baby care category dominated by Johnson & Johnson .

Morgan Stanley analyst Bill Pecoriello said he would not be surprised if Kimberly-Clark and P&G look to develop these product segments further.

CONTINUED : Acquiring Small, Niche Companies

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