NEW YORK (CNNfn) - Death might be a depressing prospect, but it can really inject some life into your stock portfolio.
Analysts say the death-care business is sailing ahead on solid earnings, rising funeral costs and a generation of aging Baby Boomers willing to pay almost anything for a personalized tombstone.
"Death is one of the great things everybody can rely on," said Abraham Karp, a death-care analyst at Karp Financial Group in Tarrytown, N.Y. "All of the things in this industry point up."
Everlasting supply and demand
One reason for Wall Street's interest in the death industry is that a handful of publicly-traded companies has been buying up "mom and pop" funeral homes across the country.
The strategy is to keep the same family name on the door but consolidate services in a region -- one location for embalming, one garage for the hearses, and so on. At the same time, funeral costs go up, which is bad for consumers, but good for investors.
"One of the strengths of the industry is companies do have pricing power," said Josh Rosen, vice president and a death-care analyst at ABN Amro in Chicago. "You don't have to worry about someone coming in and cutting prices 20 percent."
And people are willing to pay for something special to memorialize their lives, said Susan Little, an analyst Raymond James Financial Group in St. Petersberg, Fla.
They commission tombstones in the shapes of Mercedes-Benzes or Harley Davidson motorcycles -- or they put special features like an American flag into the lids of their caskets.
In one case, a Texas couple spent $200,000 on a specially-designed tombstone after their 17-year-old son died in a car crash.
The statue was a seven-foot angel in their son's likeness, complete with a pair of skis propped up against his wings, a baseball mitt at his feet and an Algebra book opened to the page he was reading before he died.
"They spent the money because it was important to them," Little said. "I guarantee you they are happy with that angel."
The players -- big and small
A favorite stock among some Wall Street analysts is Houston-based Service Corp. International (SRV), the world's largest funeral home company. It has about 3,900 funeral homes, cemeteries and crematoriums in 18 countries.
Service Corp.'s stock has risen 85 percent in the past three years.
Rosen thinks Service Corp. holds a lot of promise because it formed a financial services division where people can 'pre-pay' funerals through insurance policies or trusts.
"It has the potential for being a big money-maker in the long term," Rosen said.
In August, Service Corp. announced plans to buy Equity Corp. International (EQU) in a deal worth $580 million. Equity, based in Lufkin, Texas, owns 326 funeral homes and 81 cemeteries.
Rosen and Little also recommend Stewart Enterprises Inc. (STEI), based in Metairie, La., a mid-cap stock; and Carriage Services Inc. (CSV), a small-cap company based in Houston.
"These are great long-term core holdings," Little said.
Stewart's stock has more than doubled in the past three years, while Carriage shares have risen about 38 percent.
Some bad publicity
But the industry has taken some hits.
Canada-based Loewen Group Inc. (LWN), the second-largest company behind Service Corp., has struggled to regain its footing after two multi-million-dollar court judgments in 1995 and 1996.
(In the first case, a Mississippi jury awarded $500 million to the plaintiff in a lawsuit involving claims of unfair pricing and breach of contract, Little said. The judgment was eventually reduced to $180 million. In the wake of that case Loewen settled a second lawsuit in Pennsylvania involving charges of unfair pricing for $50 million, she said).
The company went on a buying binge to make up lost ground after the judgments but ended up losing more market share, she said. Shareholders eventually forced out the chairman, Raymond L. Loewen, several weeks ago. The company has hired Salomon Smith Barney to help it restructure debt and turn around operations.
"People look at Loewen and ask if the problems are company-specific or industry-related," Little said. "I think they're company-specific."
But other companies in the industry have been a little tarnished by the Loewen 'black cloud,' Little said.
Marketing caskets and urns
Meanwhile, companies have started using the same marketing techniques as other retailers, setting up fancy displays in slick showrooms, Rosen said. The message to consumers is they can have whatever they want in a casket or urn. People can even buy lockets that hold small amounts of their loved one's ashes.
Tombstone maker Rock of Ages Corp. (ROAC) is following Service Corp.'s example and is acquiring independent monument dealers, Little said. The company advertises itself as a maker of one-of-a-kind memorials.
"Baby Boomers don't want the same two-by-three-foot stone," Little said. "They want to be remembered for who they are."
And customers can order pretty much whatever they want in a casket-- delivered within 24 hours.
Even the family of the late crooner Frank Sinatra had a special request for the inside lid of his casket, Little said. She never could get the company to tell her what the family ordered.
"Maybe something like, 'I did it my way.' "
-- by staff writer Martine Costello