(FORTUNE Magazine) – ON JANUARY 1 the first baby-boomer turns 50. From then on boomers will plunge into their 50s at the rate of over 10,000 a day for the next ten years. Like a glacier inching across time, this massive generation will continue to alter America's economic landscape, as it has since it started bawling for clean diapers in 1946. Just as this 76-million demographic bulge created near-insatiable demand for housing and minivans in the Eighties, it is sure in decades to come to bid up the value of financial services, leisure goods, and preventive health care. And that means big opportunities for investors.

Looking at demographics, you get a broader view than if you simply value companies by poring over financial statements. Forearmed with the knowledge of where the population is headed, you can target the industries and sectors most likely to gain, and the promising companies therein. "You can see trends working through the population," explains Merrill Lynch chief economist Donald Straszheim: "Fifteen years ago openings at ski resorts and tennis courts were hard to come by. Now it's tee times at golf clubs."

So where exactly will the best demographic plays be? Start by looking at the coming changes in America's population. The boomer bulge is the mother lode: The fastest-growing portion of the population over the next decade will be people ages 45 to 60. But the number of teenagers and folks living past 75 will also increase substantially. (For more on how to make money betting on the aged, see box.) As the boomers move through their peak earning years, their kids--the baby-boom echo, born between 1977 and 1993--and their elderly parents will make additional demands on that income, as the former attend college and the latter require more medical care.

It's one thing to spot a demographic shift, another to profit from it. To do that you must look not only at population figures but also at changes in behaviors and needs. A good place to start is with boomers' increasing obsession with retirement. Ann Clurman, who has been monitoring attitudes about social change for the past 20 years at Yankelovich Partners, senses a profound shift looming. Says she: "We don't even have the right language yet. Starting in 1996, boomers will get their membership cards from the American Association of Retired Persons. Boomers and their 80-year-old parents will both belong to AARP."

A recent Merrill Lynch study shows that boomers are saving barely a third the amount they'll need to make it through the golden years. But an increased awareness of their savings plight coupled with a perception that Washington is drawing in the social safety net may finally induce the boomers to adopt fiscal habits more in line with the rest of humanity. It seems the prospect of turning 50 is popping on a light somewhere in those boomer brains.

Key beneficiaries of this shift should be mutual fund companies, brokerages, insurers, and financial planners. Goldman Sachs analyst Richard Strauss recommends shares of discount brokerage Charles Schwab. The company should prosper as boomers enter their top savings years at a time when many are expected to receive an extra windfall in the form of inheritances. Cornell professors Robert Avery and Michael Rendall estimate that boomers will inherit $1 trillion in the next ten years. This deluge of inheritance money will join those assets already forsaking traditional bank accounts for mutual and money market funds and other financial vehicles that Schwab handles. The company should also benefit from the continuing groundswell of corporate cash migrating from defined-benefits pension plans toward 401(k)s. Like it or not, people are being forced to become investors because employers no longer want to take responsibility for managing retirement assets. Schwab tries to make it easy for them. More than a third of all transactions are completed via computer or the telephone. Comments analyst Strauss: "Baby-boomers put a premium on convenience, and Charles Schwab is out there giving it to them."

The stock, recently trading at $24, has a price/earnings ratio of 26, somewhat above the S&P 500's P/E of 17. Over the past five years, earnings per share have been rising at a 50% compound annual rate, and analyst Strauss thinks they can continue at a 30% clip for some years to come.

Some boomers will want more handholding than a discount brokerage like Schwab can offer. That bodes well for full-service brokerage Merrill Lynch. What Merrill does is sell advice, analysis, and expertise through 12,000 financial consultants at retail offices nationwide. Says William Henkel, head of market planning for the Private Client division: "We absolutely believe that a person's financial security is too complex for an 800 number."

Although Merrill Lynch is not a pure play on the rise of the boomer investor--it has substantial banking and trading businesses--the brokerage does manage $675 billion in assets for pension funds, 401(k)s, mutual funds, and private individuals. It is trying to attract young customers by providing more personalized service. Smith Barney analyst Alison Deans expects earnings to grow at an 11% rate over the next five years. She suggests buying Merrill stock on any meaningful pullback from recent levels near $54.

Another big shift to look for: a renewed interest in leisure and entertainment by boomers. Yankelovich's Clurman notes that boomers have outgrown the materialism of the Eighties and are focusing more on the home and family life. "A lot of people bought all that prestige stuff," she says, "and guess what? It didn't make us happy." Also, the kids are growing up, leaving more time for mom and dad to putter around the house or just plain indulge themselves. Marketing consultant Judith Langer predicts a rising interest among boomers in gardening, cooking, do-it-yourself home improvements, and other serenity-seeking activities. Industries poised to catch this wave of fiftysomething soul searchers include those related to books, furnishings, and gardening.

Amy Ryan, an analyst at Prudential Securities, likes bookseller Barnes & Noble. "People are spending more time at home," she says. And as they get older they read more. The Book Industry Study Group, a New York City research outfit, reports that most book buyers are 45 and older. This age group spends more on reading materials than the national average. At Barnes & Noble superstores they can peruse on average 150,000 volumes and purchase best-sellers at 30% discounts. The atmosphere is more like a library's; customers can sit and read for hours. Some stores even have a Starbucks coffee bar on the premises. Ryan expects profits will grow 46% this year, to $37 million, on sales of $2 billion. The stock, recently $38, sells at a heady P/E of 43.

EXPECT OLDER BOOMERS to dole out more cash for sheets, comforters, tablecloths, and towels than any other group. Home furnishings should also get a lift from a temporary surge in the number of 25-year-olds. Richard Hokenson, chief economist at Donaldson Lufkin & Jenrette, points out that in early 1968, during the Vietnam war, the Selective Service tightened restrictions on draft deferment so that one of the only ways to avoid being called to combat was to become a young father. The resulting uptick in infants is now manifesting itself as a rise in baby-busters turning 25 between October 1993 and March 1996. At 25, many people form households and, of course, purchase goods to fill their nests.

This propensity for housewares should play right into the hands of Williams-Sonoma, which also gains from boomers' heightened interest in home furnishings, cooking, and gardening. Its businesses include Pottery Barn furniture stores, Williams-Sonoma kitchen emporiums, Gardeners Eden catalogue, and an upper-crust bed and bath catalogue called Chambers. If ever a company was obsessed with the boomer consumer, this is it. Most of the San Francisco retailer's customers are over 35. They are looking for quality design in everyday objects, whether a doormat, a coat hanger, or a magazine rack. Patrick Connolly, head of the mail-order business (and about to turn 50), argues that boomers are now more interested in the quality of an item than in what it symbolizes. Says he: "I don't need a Rolex watch to represent who I am, but I'd like to own a nice watch."

That's the idea behind all Williams-Sonoma's businesses, especially its catalogue sales of high-quality kitchen and garden gadgets. Mail-order revenues have doubled in each of the past two years, but costs associated with this ramp-up in volume led to a loss of $4.8 million for the first three quarters of 1995. Total sales were up nearly 20%, to $384 million. The stock recently traded around $19. Joseph Ellis, an analyst at Goldman Sachs, thinks the shares may exhibit short-term weakness, but he is bullish over the long term. Williams-Sonoma and Pottery Barn are, he notes, "two of the most commercially viable and underdeveloped store concepts in American retailing today."

Boomers are probably going to be the most active 50-year-olds who ever lived. One thing they are intent on is feeling youthful and not looking like their parents. A character in Avery Corman's novel 50 sums it up well when he says, "Your fathers are fifty. You're not fifty." Perhaps four-wheel-drive sport-utility vehicles are so popular because boomers are apprehensive about driving the station wagons their parents drove. One way they deal with these feelings is by seeking experiences that remind them of their youth. Notes Judith Langer: "Nostalgia just doesn't let up with them."

A nostalgia stock without equal is Harley-Davidson. The median age of a Harley customer is 42. Ten years ago it was 34. Ever more accountants, physicians, and engineers are donning the leather and escaping the confines of their offices. Customers buying their first motorcycle or coming back to riding after a lapse of many years increased more than threefold between 1987 and 1994, and the trend shows no signs of abating. Harley can't meet demand for its hogs: Dealerships are already sold out of next year's models, and year-old Harleys sell for 25% more than the list price of new bikes.

TYPICAL of the new breed of bikers is tax accountant Ralph Garrido, 48, who quit riding in 1976, a couple of years after he graduated from college and began raising a family. Four years ago he bought his first Harley low rider and now can't kick the habit. Complains his wife, Shelley: "He doesn't want to do any work. All he wants to do is be on that bike." Jim Rau, a Toyota production engineer, also returned to the hog's life after a 20-year hiatus. He started riding again in 1993 after suffering a heart attack. Asked why so many people pushing 50 are converting to the Harley way, he speculates, "Maybe all of us are going through midlife crises."

The problem with the scarcity of bikes is that fewer people are going to the dealerships, where Harley sells high-margin jackets and accessories. The tapering of those sales and the lackluster performance of its motor-home division have some investors concerned. But Dean Witter analyst Ronald Glantz thinks those issues are merely speed bumps that the $1.5-billion-in-sales Milwaukee company will leave behind. He rates the stock, recently trading near $28 and at a P/E of 20, a buy.

Revving up sales from zero to $60 million in the seven years since it was founded, pintsize Mackie Designs, which trades on Nasdaq, is tapping into the boomer love affair with music. The Seattle company produces high-quality sound mixers at affordable prices starting as low as $400. About half of Mackie's revenues comes from the home market, with its core customers falling between 34 and 55. Aging Jimi Hendrix wannabes are whipping out their Fender Stratocasters to record their own songs. Says Stephen Schweich, an analyst at Robertson Stephens & Co. who is bullish on the stock: "Baby-boomers who dabbled in music in college and high school now have enough money to build their own home recording studios." Given Schweich's estimated 25% earnings growth rate, the shares, recently near $12 and with a P/E of 15 times Schweich's 1996 earnings estimate, look like a bargain.

Try as they might to deny it, boomers will have to face up to the inevitable physical changes that hit people after about a half century of eating french fries and watching TV. Vision problems, creaky bones, plaque-filled arteries, and menopause will all seemingly be happening at once to a huge number of people. Rand Corp. demographer Peter Morrison predicts, "Sales of bifocals will skyrocket." Quips Judith Langer: "I keep waiting for a deodorant called Hot Flashes."

ATROPHYING BOOMERS are already placing greater emphasis on prevention of poor health, especially through diet. As Paine Webber chief strategist Edward Kerschner points out, "Hamburgers are out, mesclun lettuce tossed with raspberry vinegar and extra virgin olive oil is in." He thinks one beneficiary from the boomer health kick will be General Nutrition Cos., which operates a chain of natural food and vitamin stores. Its stock, at a recent price of $26, looks appetizing. About 30% of Americans 35 and older take vitamins regularly, and usage increases with age. Herbal products are becoming increasingly popular too. Says CEO Bill Watts, who has established GNC as a brand that boomers trust: "Science is confirming that Grandma's old home remedies actually work."

After acquiring its largest competitor last year, the Pittsburgh company's 2,400 dietary supplement centers face virtually no serious nationwide competition. And its one-a-day strategy of opening new stores should lead to a formidable 4,000 units in the U.S. and 1,000 more abroad by the end of the decade. Profits for the first three quarters of 1995 rose 110%, to $46 million, on revenues of $580 million.

While boomers are 29% of the population, their echo-boomer children, now 18 and younger, make up 26%. This young generation is swelling the ranks of teenagers to numbers not seen since their parents were struggling with pimples and proms in the 1960s. But an important difference between today and yesteryear is the normalization of divorce and remarriage. This unhappy trend has a multiplier effect on teen spending. More adults are emptying their wallets per child as recoupling introduces not only a new mom or dad but new sets of grandparents as well. And as Rand's Morrison notes, grandparents, with their accumulated savings, shell out enormous amounts of dough so their grandkids can buy more T-shirts and videogames.

If teenagers want one thing, it is to have fun--24-hours-a-day fun, the kind you find on MTV or at Blockbuster Video. Fortunately for Viacom, it owns both, as well as the Nickelodeon and Showtime cable channels and Simon & Schuster, which isn't always fun but is one of the world's largest educational publishers. Nickelodeon has a larger share of the child audience than the four major networks combined. And rock channel MTV should continue to grow. Says Keith Benjamin, an analyst at Robertson Stephens: "The Disney children are getting older, and they want their MTV."

Another way to play the teen market is to invest in computer software makers. Techno-literacy decreases with age, it seems. Add parental fears that without computers children will simply be left behind in the emerging knowledge-based economy, and it's easy to see why software companies should benefit. But is it wiser to invest in an educational software company like Broderbund Software or a videogame developer like Acclaim Entertainment? both trade on Nasdaq. Analyst Benjamin likes each one but thinks Acclaim is a better choice, observing, "Teenagers will not be growing brains anytime soon." Lee Isgur, an analyst at Jefferies & Co. in San Francisco, points out another problem with educational software: "For the most part it is being purchased by one demographic group to be used, in theory, by another demographic group."

Like Viacom, Acclaim is successful among teenagers because it is providing what is cool. The Glen Cove, New York, company is responsible for such classic twitch games as Mortal Kombat and NBA Jam. No matter which videogame system becomes next year's craze, Nintendo, Sega, or Sony, Acclaim will develop software for it. The videogame industry is moving to more powerful systems, and software sales won't likely take off until Christmas 1996, when these new systems should catch on big.

Acclaim's stock is trading at a severe discount to its peers'--16 times Benjamin's 1996 earnings estimates vs. a multiple of 39 for the industry. But its financials and long-term strategy look good. For the fiscal year that ended August, Acclaim earned $55 million on sales of $585 million. CEO Greg Fischbach used to head a division of RCA Records and formerly managed the Steve Miller Band and the Eagles. He markets videogames more like records or films than like software, with comic book character and sports celebrity tie-ins. And in a joint venture with cable giant TCI, he has hired one of the founders of MTV to explore development of a videogame channel.

WHILE BOOMERS have lately been less enamored of malls, their kids are still hanging out there. For the teen uniform of irreverent T-shirts, jeans, and baseball caps, they can go to any of the 180 stores run by Pacific Sunwear of California. CEO Michael Rayden, who happens to share a name with of one of the Mortal Kombat characters, says, "The key is to be a cool store without talking about it." He shuns advertising because he does not want to come off as contrived, and draws in young teens by offering a hassle-free environment they can call their own. Salespeople, many not much older than their customers, play their own CDs and don't hound the teen shoppers.

Earnings the past three quarters have been battered by a general shakeout in retailing, declining 60%, to $923,000 on sales of $77 million. But Rayden thinks the worst is past. He has diversified the product line (adding sneakers, flannels, and girls' fashions), is opening larger stores, and has boosted private-label sales. Maria Medaris at Alex. Brown & Sons strongly recommends the stock, which at a recent price of $9 is trading 45% below its 52-week high.

FINDING BUSINESSES that will get a lift as the double hump of the boomers and their children moves through the population is easier than picking companies that target the trough of baby-busters born between 1965 and 1976. These fickle, struggling Generation Xers cluster around niche products that are affordable and are perceived to be of high quality, such as microbrewed beer. An American Demographics survey shows that 25- to 34-year-olds drink more specialty beer than people of any other age.

Seattle's Redhook Ale Brewery went public last August. Gen X hopheads enjoy the fuller flavor of Redhook's premium beers and the chic image they confer. Through a joint venture with 25%-owner Anheuser-Busch, the company is building national distribution. Diane Daggatt, an analyst at Pacific Crest Securities, compares today's premium beer market to the premium coffee market before it took off five years ago. Incidentally, Redhook is test-marketing a black stout brewed with a proprietary coffee extract from Starbucks. Daggatt recommends the stock, recently trading near $27.

While looking at demographics is often eye-opening, it can take the investor only so far. Once you identify sectors and markets ready to clean up on the next population shift, you must move beyond straightforward bulge analysis and pick companies that possess the most appealing fundamentals. What the overall demographic picture can indicate--and it's worth a lot--is where to start digging.

Reporter Associates Jane Furth, Sheree R. Curry