Credit: Shutterstock photoThe global financial chaos over the past few months has made us overlook many interesting facts, one of which is of course the rise of the Millennials over the Baby Boomers. This generational scene change has the potential to alter the economy as a whole.
If we go by the latest data released by the U.S. census bureau, Millennials, or Gen Y - America's youth born between 1980 and 2000 - has emerged as the nation's biggest generation alive (83.1 million in number), superseding the huge but shrinking 75.4 million baby boomers (born during the post-World War II population boom).
And with it comes an inevitable change in consumption-spending patterns. From an investor's perspective, it is baffling how you evolve with ever-changing trends - whether to transform the entire equity portfolio or wait for the perfect time. But again, when is that perfect time and how would you know it has come?
Jim Cramer says, "I love behavior-change investing. It can be incredibly lucrative, and when you have a behavior-change theme you can use selloffs to pick stocks based on those changes."
It's a huge opportunity out there and being myopic just won't work. You need to come out of your shell to bet on trend changing consumption habits of Gen Y and, trust me, it's a gain game.
A Look into the Trend Change
Already a lot have been said on the growing prosperity of the insurance sector over the past decades based on the investment pattern of the Baby Boomers. This population has leaned toward safety and security in life as well as afterlife. The rise of insurance giants like WellPoint Inc. (now Anthem [ ANTM ]), UnitedHealth Group Inc. UNH , Cigna Corp, and Aetna Inc. and many more is a testimony to that.
However, it seems that Millennials are not the ideal offspring (are there any?) if "safety and security" is to be the mantra. Rather, they are believers of "more risk more gain." Hence, the insurance space might not be among the booming sectors we should have on our radar right now.
Which Industries Look to Benefit?
With the Millennials leaving the nest, the first thing on their mind is housing. The National Association of Realtors 2015 report on generational trends found that 32% of the total set of homebuyers constitute the Millennials and this percentage may increase soon.
According to a report by money.usnews.com, almost half of the Millennials will be looking to buy their first home over the next two years. This means a huge surge in home sales ahead. Housing is the market which we see prospering to a large extent due to this altering trend.
And it's not just homes. Millennials are no neophytes when it comes to technology. They've been raised amid increasing uptake of electronic and digital gazettes and are popularly known as the first generation of the digital population. A huge part of their spending goes to gadgets, with a constant drive to acquire the latest and the most sophisticated devices. These range from smart home appliances to digital products like the android version of mobile phones, computers, digicams and many other things.
Technology and related stocks are definitely the in thing when we discuss the Millennials. We also recommend entertainment stocks like Netflix, Facebook, Twitter, Google GOOGL and several online gaming stocks.
Next comes the emerging role of the restaurant industry in the life of Gen Y. Foodie culture and the good life have become synonymous. During the work-a-day week, it's all about fast food joints and corporate meetings at hotels but when it's Friday, it's about family dinners and nights out. Observing this trend, food chains like Papa John's International Inc. PZZA , McDonald's Corp, Dave & Buster's Entertainment and many other smart restaurants are ramping up to meet the gastronomical demand of the largest generation in the country.
And as they check off restaurants, a lot of their time is spent on online shopping. According to a Goldman Sachs report, "[W]ith product information, reviews and price comparisons at their fingertips, Millennials are turning to brands that can offer maximum convenience at the lowest cost." There lies the secret of the success story of the Internet commerce giants like Amazon, eBay, Alibaba Group Holding BABA and many more.
Talking about fitness and health consciousness, unlike their parents, these Millennials are fitness freaks and are not interested in traditional gym membership plans. They carry FitBit in their pockets 24 hours a day and sanctimoniously maintain a healthy life. Apart from FitBit, sports brands like Skechers, Nike and others have completely adapted their product offerings to this new Millennial fitness mantra.
This discussion would be incomplete if we don't mention the fast changing pattern of the auto industry. While private cars used to be a compulsory belonging of the baby boomers, Millennials are observed to be reluctant about holding cars. Instead, they've introduced the concept of car sharing. Millennials are particularly attracted to leasing cars that are the most advanced, luxurious and big. According to economist Jeremy Rifkin, "25 years from now, car sharing will be the norm, and car ownership an anomaly." And brands like Dodge Ram, GMC, Lexus, Jaguar and Cadillac will be at their height.
4 Stocks to Ride the Millennial Boom
Coming down to business, we've shortlisted four stocks that have shown early signs of tremendous growth leveraging the Millennial market sentiment.
Needless to say, all these stocks currently have a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a Growth Style Score of 'A' or 'B'. (Click here to know about our Style Score System )
DR Horton Inc.DHI
This Texas-based homebuilder has very well captured the behavioral pattern of the Millennials. The company is primarily engaged in the construction and sale of single-family houses which this generation demands. In particular, the company's latest Express brand caters to entry-level buyers looking for affordability.
DR Horton has raised a decent 44.9% over the past one year. Besides, investors can count on the stock because it has the top combination - a Growth Style Score of "A" and a Zacks Rank #1. Its long-term expected EPS growth rate is pegged at 93.2% versus 90.2% for the industry.
Bob Evans Farms, Inc.BOBE
This famous full-service restaurant company's tag "farm fresh goodness that brings families together" is what the health conscious Millennials are craving for. Bob Evans Farms' current focus on delivering "Best In Class Breakfast" perfectly complies with the fast moving life of Gen Y.
This Zacks Rank #1 company boasts a Growth Style Score of 'A' and is expected to grow at a rate of 18.8% this year (compared with the industry growth rate of 18.6%). Moreover, positive earnings estimate revisions over the last two months should be reflected in its stock price.
Amazon.com Inc.AMZN
There's no need to introduce this e-commerce giant. Although Amazon started with books, the company rapidly diversified into a host of other product categories to comply with the ever-changing taste of the Millennials. Amazon is currently working on rapid business expansion across the globe.
Amazon has raised a formidable 73% in the last two years. The company is expected to grow at 392.7% for the current year, compared with the industry average of a mere 17.6%. The growth potential of this Zacks Rank #1 stock is further emphasized by its Growth Style Score of 'A.'
Control4 CorporationCTRL
Over more than a decade, leading home automation player Control4 has been working successfully in the smart home niche. Its popular smart home products include thermostats, lights, appliances, locks, garage doors, blinds, sprinkler systems, pools and spas, fans and fireplaces which are designed to be compatible with most home automation applications.
This Zacks Rank #1 company's projected sales growth (for the current fiscal) is impressive at 14%. Further, it has a Growth Style Score of 'B.' Positive earnings estimate revisions over the last two months increase the chances of the stock's outperformance.
Bottom Line
While it has been observed that Millennials give lesser weightage to brand loyalty, we think you should not ignore it while choosing your stocks. Make it a point to pick your stocks from different sectors which will be a hedge against uncertainty.
After all, you still don't know how the preference of Gen Y will change in another 10 years, when they reach a respectable middle age.
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AMAZON.COM INC (AMZN): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
BOB EVANS FARMS (BOBE): Free Stock Analysis Report
PAPA JOHNS INTL (PZZA): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis Report
CONTROL4 CORP (CTRL): Free Stock Analysis Report
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ANTHEM INC (ANTM): Free Stock Analysis Report
ALIBABA GROUP (BABA): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
