SCARING UP BUYS FOR HALLOWEEN: DEATH STOCKS MAY HEAT UP AS CREMATION RISES

Investors in funeral home stocks are getting buried alive.

But that hasn’t stopped them from trying to make a killing in the death industry. Professional value investors say stocks of the country’s four biggest providers of undertaking services are cheaper than a bad horror flick on the big screen.

“It’s stable, predictable and non-cyclical,” says Credit Suisse First Boston’s Joshua Rosen, whose ghoulish title is analyst of death services and vice president of equity research. “There are some values in these stocks; it might take some time for the sentiment to improve and the operating performance to improve.”

As baby boomers head toward their retirement years, the next life stage is that much closer, so undertaking is, er, poised to bring in a lot of business. With annual deaths slated to hit 2.5 million by 2010, up from 2.3 million last year, investors may see the industry looking up, according to the Cremation Association of North America in Chicago.

The stocks are cheap for a host of reasons: rising costs, bad acquisition choices and increased competition, which includes Internet companies. Not helping is that the industry is under scrutiny by a Senate panel inquiring about rising prices for funeral services. The end result could be greater Federal oversight of the industry.

Houston-based Service Corp. International, the world’s largest funeral home and cemetery company, is trading at around $8, a far cry from its 52-week high of $40.56 last November. Loewen Group Inc. of Burnaby, British Columbia, has filed for bankruptcy protection and is trading at 43 cents. Stewart Enterprises in Metairie, La. – which operates 419 funeral homes and 131 cemeteries in 25 states, Puerto Rico and countries such as Australia and Portugal – is trading below $5. Carriage Services Inc. in Houston is trading around $7.

All these companies lost about three-quarters of their value in the first nine months of the year, but where there are lots of people coming to the end of life, there’s hope.

“This industry is not a fad as so many are,” says Chip Paquelet, who manages the Strong Discovery fund in Menomonee Falls, Wis.

For instance, Mr. Paquelet holds a minimal amount of Carriage Services, which he describes as “the youngest company with the cleanest books,” and whose stock has been dragged down by the rest of the industry.

As for the rest, Terry Dwyer, a junk bond researcher at KDP Investment Advisors in Montpelier, Vt., likes the demographic trends for this industry. And if Loewen Group cleans up its books, he says it could make a nice restructuring play or become attractive as a takeover.

If investing in these companies spooks you, there are several others that are risky too. Neptune Society, which went public in May, allows people to plan their own cremations or burials at sea over the Internet.

One major investor is venture capitalist Bobby Genovese, president of BG Capital Corp., an investment management firm that specializes in finding niche sectors. His firm helped Neptune raise $7 million, and it has close to a 5% stake in the company.

“How can you not put money into a company like this?” he says. “No matter what happens the company has business booked for the next 13 years.” He even signed up for his own cremation. “Being an Italian-American, it’s not like the old days where everyone is buried in a little town.”

As with other industries, Internet companies are putting competitive heat on the most established players in this one, too. Says Lisa Carlson, executive director of Famsa-Funeral and Memorial Societies of America, a Hinesburg, Vt.-based non-profit organization that gives consumers information on how to choose affordable funerals: “Big companies are playing the bean game with baby boomers, but they are in for a rude awakening. They are not going to be tied down to a casket.”

Of course, you wouldn’t want to bet your life on these stocks.

Take Pauze Tombstone, please, with its annualized return of minus 37.47% from its 1997 launch to date. It invests 100% in the corpse-disposal industry. The Pauze Swanson Capital Management Co. Tombstone common stock index, which it tracks, has fallen 73.8% this year.