Millennials are one of the largest generations in history, and yet they continue to get a bad rap for either being fiscally irresponsible or for failing to keep certain industries alive as their parents did.
However, according to CB Insights, Generation Y is expected to receive $30 trillion in wealth over the next couple of decades, and this transfer of wealth is going to transform many industries that will benefit from their increased spending power.
While many tend to point to millennials’ focus on experiences, it’s also true that they like many of the same things that baby boomers and Gen X’s before them do.
The companies that will win in the next 10-20 years are those that reprioritize around Generation Y. By embracing new technology to provide affordable products in a customized manner, companies can benefit from the spending habits of millennials.
CB Insights has identified 12 industries that should benefit from Gen Y. Here are seven stocks to buy from seven of those industries identified as winners.
Camping: Thor Industries
Millennials are driving the growth in camping, literally and figuratively. In 2018, almost 80 million Americans went camping, many of them millennials.
“Last year , 56% of all new campers were millennials (up from 51% in 2017), and 41% of total reported campers were millennials,” according to the CB Insights report. “Part of millennials’ enthusiasm for camping springs from the fact that many of them are entering their prime spending years and starting families of their own.”
Millennials are looking for relatively inexpensive forms of relaxation. Many are opting for recreational vehicles rather than good old fashioned camping in a tent.
One company that continues to benefit from the millennials’ attraction to camping is Thor Industries (THO), which manufactures trailers and motor coaches under many different brand names including Air Stream, the classic silver trailer that Americans know and love.
In 2018, RV shipments were 483,672, the second-largest number since the Recreational Vehicle Industry Association’s been tracking sales. Only 2017 was better.
To meet the demand of younger campers, Airstream offers the Nest, a compact trailer that costs just $46,000 to buy, making the open road a more cost-effective alternative to buying a cabin or staying at a five-star hotel on every vacation.
You can call millennials a lot of things but don’t call them lazy.
According to CB Insights’ report, 76% of millennials exercise at least once a week, more than Gen Xers at 70% and boomers at 64%. Millennials are dropping close to $7 billion each year on gym memberships, double what Gen Xers and boomers do.
Naturally, you’d think I’d recommend a fitness club chain such as Planet Fitness (PLNT), whose stock’s done well since going public in 2015.
However, the capital requirements of fitness facilities make them terrible investments when the economy sours.
So, I’d rather bet on a company like Lululemon (LULU), that’s making sure millennials not only are dressed to perform while exercising, but they look good doing it.
With the company expecting double-digit earnings gains each year until at least 2023, the sky is the limit for LULU stock.
Travel: Booking Holdings
While it can be stereotyping to say all millennials thrive on experiences rather than buying stuff, they do indeed like to travel.
“An Airbnb study from 2016 showed that many millennials prioritize saving for their next trip over paying off debts or saving to purchase their first home,” CB Insights report stated. “Another found that 21% of millennials would accept a lower salary if it meant they could travel more frequently.”
However, just because they want to travel, doesn’t mean they want to do it in the same manner as their parents.
Therefore, for travel companies to be successful, they’ve got to provide a combination of unique experiences, budget prices, and excellent customer service; three things that aren’t easy to deliver.
Booking Holdings (BKNG), which used to be known as Priceline, increased its roster of available homes and apartments on its Booking.com website in 2018 by 47% to 1.75 million. By 2019, Booking and Air BNB were in a dead heat for that market. Booking.com’s hotel portfolio increased by just 10% to 436,000.
The push toward a pre-pay business model where alternative accommodations are paid for ahead of time as opposed to at the time of hotel stay, is in large part being driven by the millennial desire to stay somewhere more authentic or local.
While it makes Booking’s business a little trickier, it’s the wave of the future, and much better for cash flow.
Fast casual dining: Shake Shack
If you want to please millennials and you operate in the restaurant industry, you’ve got to be fast because Gen Y is always on the go.
According to the CB Insights report, 40% of millennials eat on the go, significantly higher than either Gen Xers at 26% and boomers at 19%. Not only that, but millennials want a good deal with that tasty burger to go.
One of the biggest trends in the restaurant industry at the moment is plant-based meat, also known as Meat 2.0. Shake Shack (SHAK), whose stock is up 24% since this time last year, is one of the fast-casual dining establishments to jump on meatless burgers.
It’s sold the Shroom Burger for years, a fried portobello mushroom stuffed with cheese and served on a bun. That said, it still hasn’t embraced the Beyond Meat (BYND) movement as other concepts have.
But it’s working on it.
“I think we’re going to keep an eye on that, but the meat substitute is not as interesting to us right now,” Shake Shack CMO Jay Livingston told Ad Age in August. “We’re really interested in creating, like a veggie experience that people are super excited about. We’re kind of figuring out what that might look like right now.
Business is good at Shake Shack.
On the one hand, the fact that millennials love coffee is excellent news for Starbucks (SBUX), whose U.S. stores had seen several quarters of slower than average same-store sales growth.
On the other hand, millennials are predisposed to try boutique coffee roasters, which Starbucks is not.
To make matters worse, Starbucks released a revised 2020 guidance Sept.4 that suggests its earnings growth this year won’t meet its “ongoing growth model of 10%.”
However, much of the slowdown has to do with one-time tax benefits in 2019. The company itself continues to do just fine.
“I would say that we’re firing on all cylinders from an operating performance perspective with the focus and discipline necessary to drive growth at scale for a company like Starbucks and our long-term double-digit EPS growth model is fully intact,” CFO Pat Grismer stated recently while speaking at the Goldman Sachs’ Global Retailing Conference.
Furthermore, as a result of its stock generating a year to date total return of 42% through September 10, Starbucks has made $2 billion in share repurchases this fiscal year instead of next year to deliver on its promise of share repurchases delivering 2% EPS growth.
While SBUX stock might get knocked around from time to time, it’s operationally one of the best companies in America.
Oh, and millennials love their cold drinks.
Frozen foods: Kellogg
The global frozen food market is projected to grow to $290 billion by 2021.
Two stats suggest that millennials are driving a frozen food renaissance: First, millennials spent 9% more on frozen foods per trip to the grocery store in 2017 than other demographics. Furthermore, frozen food sales in the U.S. in 2018 grew for the first time in five years, thanks in large part to millennials.
Frozen foods meet the millennial desire to eat healthy, fast, and relatively inexpensively.
One company that’s benefiting from the resurgence in both frozen foods and plant-based meats is Kellogg (K), the company better known for Special K and Frosted Flakes.
However, between its Eggo and Morningstar Farms brands, Kellogg’s managed to increase frozen sales by 3.2% in the second quarter ended June 29, only 50 basis points less than its snacks division, which counts Pringles and Pop-Tarts amongst its brands.
Last year the company introduced Incogmeato by MorningStar brands, a portfolio of products that are both ready-to-cook and frozen including a plant-based burger and Chik’n tenders and nuggets.
“We know that about three-fourths of Americans are open to plant-based eating, yet only 1 in 4 actually purchase a plant-based alternative,” said Sara Young, General Manager, MorningStar Farms, Plant-Based Proteins. “We know the number one barrier to trying plant-based protein is taste. These consumers are still seeking the amazing taste, texture, and sizzling qualities of meat but want a better alternative for themselves and the planet.”
They’re expected to be available in the next few months.
Personal finance: Intuit
Millennials have the highest student loan debt of any previous generation. Combine this with the fact the cost of living is rising faster than it has in the past decade, and it’s no wonder millennials are willing to try personal finance apps that help them save money that they can use to pay down debt.
“One of the most popular verticals for personal finance tech is banking. In one survey, 71% of millennials said that they would rather go to the dentist than listen to what a bank has to tell them — a sentiment-driven largely by poor customer service and poor technological integration,” stated the CB Insights report on millennials.
However, rather than recommend a bank that uses technology, I’m going to suggest Intuit (INTU), the granddaddy of fintech companies.
Most investors are probably familiar with Intuit’s main products: QuickBooks and TurboTax. The former focused on small businesses and the latter on taxpayers of all sizes. In fiscal 2019, it generated $2.2 billion in free cash flow from $6.8 billion in revenue. I love companies that grow their free cash flow each year by double digits.
Intuit does this by investing in R&D. In fiscal 2019, it spent $1.2 billion on new products and innovation, approximately 18% of its annual revenue. It plans to spend most of this money improving its existing products.
One free Intuit product that millennials use quite frequently is Mint, and while other apps get higher ratings, the fact that a $69 billion company develops it ought to be comforting to most.
Long term you can’t go wrong with INTU.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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