AWhile the euphemistically called death care industry is not pleasant table conversation, it is important. It doesn’t matter who you are, what you believe in, or how much money you have, the Grim Reaper is coming for all of us. Therefore, Service Corporation (SCI) enjoys the best investment story of all: inevitability. I’m bullish on SCI stocks.
Scan the corporate headlines right now, and you’re almost certain to come across stories about a possible looming recession. As a result, many financial analysts steer their readership towards various insights that can help them navigate treacherous economic waters.
Under these circumstances, investors may be better served if they focus on relevant business models at all times, and death care couldn’t be more relevant if they tried.
Aside from respectfully various theological discussions, everyone who ever lived is dead. This is the fundamental driver of the SCI stock. Moreover, the intensity of this narrative aligns with basic economic principles.
Whether they live or not, people have to reside somewhere. Since land is a finite resource, at some point the prices of final arrangements will skyrocket due to changing supply and demand dynamics.
In fact, several publications have warned that urban cemeteries are running out of space. In addition, BBC News reported a few years ago that the world was running out of burial space.
Admittedly, this is a macabre (some might say tasteless) investment thesis. Nonetheless, the stark reality is that SCI stock is sitting on an unprecedented demand driver.
Service Corporation can outperform
On TipRanks, SCI has a Smart Score rating of 8 out of 10. This indicates moderate potential for the stock to outperform the market as a whole.
SCI Stock and the Death Boom
In future history books, 2019 might be seen as a milestone in time. Not only was this the last year before the horrific COVID-19 pandemic, but it was also the year that millennials overtook baby boomers as the largest generation of living adults.
Nevertheless, the fact that it has taken young people so long to overtake baby boomers shows what Pew Research Center labeled as their outsized presence compared to other generations. In 1999, baby boomers reached their peak population at 78.8 million people. At the time, they represented more than 28% of the total population of the United States.
However, using simple logical deduction, what goes up must come down. What has historically represented the greatest boom in live births will invariably result in the greatest boom in final arrangements. With the aforementioned factor of limited space in cemeteries, the demand for traditional burials is sure to skyrocket.
Additionally, immigration patterns will eventually play a significant role for companies like Service Corporation. Without going into details, some religions have specific protocols for final arrangements that do not correspond to space-saving measures like cremation.
Again, various factors are converging “positively” for the death care industry.
Although SCI stocks are a cynical investment from a multitude of angles, the fact that people are dying is not part of a macabre thesis. Again, with the exception of some religious belief systems, everyone who lived died. The cynicism of Service Corporation and its ilk comes alive through the potentially coming recession.
According to various studies, major economic downturns are correlated with higher death rates. This is not an unusual thesis because, psychologically, many people’s sense of identity and worth is tied to their profession. As you know, one of the first questions asked during early social introductions is what a person does. Therefore, the inability to answer this question (because of layoffs) tends to increase deaths from despair.
Additionally, as confirmed by the COVID-19 crisis, simply being socially isolated can lead to health risks, such as unwanted weight gain. Left unchecked, the increase in sedentary lifestyles resulting from recessions – not to mention depressions – can lead to chronic diseases such as diabetes. Naturally, these poor health outcomes would increase the likelihood of higher death rates, thereby cynically increasing the stock of SCI.
Wall Street’s view on SCI stocks
As far as Wall Street is concerned, SCI is a moderate buy based on a single buy rating. Service Corporation’s price target is $74, implying an upside potential of 4.8%.
A rather believable story
To be completely transparent, an economic recession does not necessarily mean bad luck for people (and therefore a boom for the SCI stock). For example, fewer people with jobs translates to fewer people on the road, thus eliminating road fatalities, and fewer cars on the road also means better air quality, thus improving life expectancy. .
Nevertheless, as America’s opioid crisis has demonstrated, desperation is mounting. Therefore, the cynical argument for the SCI stock remains largely robust. However, whatever nasty factors surround the death care industry, they don’t change the demographic realities.
It comes down to basic scientific principles. Mass in a controlled environment is neither created nor destroyed. This means that anyone born into this world will eventually occupy this world permanently. Until that narrative changes, SCI stocks are an investment you can believe in.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.