One school of stock investing has always been invest in trends you see around you. Recently, I started noticing how many of my friends were having kids (I am told that women have physical urges to have kids once they reach a certain age which is around my age- umm… “urges” eh? My face loses all color as I write…). If you read various other financial blogs, there also seem to be a disproportionate amount of bloggers having kids, discussing child care credits, cloth diapers vs. regular diapers etc. etc. The contrarian in me thinks that maybe stock investing on demographics should not focus on the obvious investment in stocks based on an aging population but, perhaps, a mini baby boom.

This seems to be supported by the demographics. In 2006, the United States had the highest birth rate since 1971. Even more importantly, the U.S. fertility rate hit 2.1 children in 2006 which means, if this birth rate can be sustained over a period of time, there will be enough births to replace deaths. For policy purposes, this means there will be enough members of the next generation to support the retirement of the thirty-somethings like me. Keep in mind, however, that the 2006 birth rates have to continue over a long period of time for this to occur (come on urges! I don’t intend to work forever).

I dug a little deeper though to determine why someone may want to invest in the “baby industry” (for lack of a better term) based on the statistics. The 2000 U.S. Census revealed a spike in birth rates from 1991-1993; persons who are now entering College and/or University. If you are active in your University alumni club or live in a University town you know that this mini-surge in birth rates has lead to the construction of new dorms, student recreation centers etc.

But here’s what really interests me about the census. Take a look at the age of Mothers. The number of Mothers between the ages of 30-34 and 35-39 increases over the 1990’s with a corresponding drop in younger Mothers (20-29). The increase of Mothers between 35-39 is quite dramatic. Assuming that older Mothers are financially better off than their younger counterparts, it stands to reason that older Mothers may spend more on baby products. Even if the sheer number of kids does not increase, the amount of money spent could still be substantial as there are more older Mothers with the economic means to buy those $1200 strollers, $120 GAP kids snow-suits, $100 booties etc.

How does an investor benefit from these trends? I have often mused openly about starting a business aimed at the baby industry- the margins are impressive and no expense is spared (nor should it be) by the potential clients. From a stock investing perspective, take a look at Middle Class Millionaire’s list of stocks which will benefit from the aging population. Remove the financial companies and the same companies which sell to seniors also sell to the baby industry. What comes around goes around one supposes. The Johnson and Johnson and PG’s of the world capitalize from both ends of the demographic spectrum (it is also interesting to note the recovery of McDonalds after a rough late 1990’s coincides with the aging of the 1991-1993 baby boomlet).

At the very least, interesting food for fodder next time you change the diapers. As usual, please do your own due diligence before you decide to invest in the baby industry.