The Millennial Market
What does each demographic of the market want? It's a question that economists and businesses puzzle over each day with just a handful of answers: men age 18-35 love cool technology, middle-class women love diet and exercise products, and senior citizens love to spend money on their pets. The younger generation of consumers represents the future for every company on planet Earth, with countless billions of dollars and millions of hours spent researching the spending habits of the "millennials", those born between 1985 and 2000, who by and large are characterized as having always lived in an Internet world. While there's a few easy answers to the question -- almost all millennials have a hugely positive opinion of Apple products, for instance -- there's a few stock picks that have returned tremendous dividends to investors based on the support of the younger generation.
A good marketing campaign can be nothing more than a good name: look no further than the emergence in popularity of Under Armour. The simple brand name promises protection to a generation of millennials who are committing more money and time to competitive sports and exercise than any generation before them. Long gone are the days of playing baseball in a back alley with a bunch of rags for a ball and three trees as bases. Today's athletes spend big on their hobby. Under Armour (UA on the NYSE, trading for $96.42 a share) didn't get into the sports equipment market first -- brands like Nike and Adidas are the Budweiser and Miller to Under Armour's craft beers -- but they've had fantastic success in only the last decade by promising better performance on the field, at the track, or just running around the block. Under Armour went public in 2006; their stock price has increased twenty-fold in the decade since their IPO. What's the secret of their success? The young generation. Under Armour markets itself as the coolest, hippest sports performance supply company on the market, selling everything from compression shorts to running shoes. They've done well to secure celebrity endorsements, furthermore: while LeBron is firmly in Nike's camp (for only $90 million!), much-hyped star athletes like Tom Brady, Stephen Curry, and Bryce Harper all hawk Under Armour products. Unfortunately, Under Armour's days of value buys are long over, but the company should continue to provide fantastic growth with a stupendous price to earnings ratio of over 100.
If you walk into a Chipotle store you may not be taken aback by the young persons there, as the burritos and Mexican food has struck a chord with all ages of the market. Yet it's the younger crowd that has shown an incredible brand loyalty to Chipotle (CMG on the NYSE, trading for $720.58 a share) while Chipotle has showered their attention on 20-somethings in their marketing campaigns. At a time when traditional fast-food stalwarts like McDonalds and Subway are finding themselves unable to expand into new markets for fear of oversaturation, a fear that their stock prices have clearly shown, Chipotle has powered forward and plans to add an additional 1500 restaurants in the United States by 2020. This brazen expansion and the success of their existing franchises seen their stock price double in just the past two years. Millennials love more than just the combination of meat, beans, and rice on a tortilla: Chipotle has chosen a variety of millennial-friendly corporate policies, including refusing to advertise on television, offering a variety of vegetarian and vegan alternatives on the menu, and eliminating GMO and non-organic foods. No fast food company has as bright a future as Chipotle thanks to their excellent strategy of drawing in the younger market and creating customers for life.
The great irony of Whole Foods is the higher cost of their food given the fact that millennials earn less than any other age demographic on the market. The younger generation has proven very willing to spend more money on what they want (again, such as Apple products) which has made Whole Foods full of both upper-middle-class shoppers and younger shoppers seeking out the newest trends in healthy food. Whole Foods (WFM on the NASDAQ, trading for $32.85 a share) stock looks unappealing to an investor on the surface, having dropped by 40% since the end of February thanks to intense competition. Look deeper, however, and it's clear that Whole Foods represents a superb value investment. Their revenue is increasing by 8% per year on average, while earnings per share rose by 4% and the company earned a 15% return on invested capital. The company will launch a new campaign called 365 to drive down the normally-higher prices, an appeal to both existing customers and new faces. Millennials who already shop at Whole Foods appreciate the organic options and variety of products; the 365 value stores will only increase the appeal. Get in now to reap the benefits of a Whole Foods surge.
- The Takeaway: while Generation X'ers are famously fickle in terms of customer loyalty, millennials have shown an incredible willingness to come back to the companies that they have supported in the past. This makes particular stocks like Under Armour, Chipotle, and Whole Foods (the latter trading well under the 52-week average) an excellent boost to an ailing portfolio. Investing in these stocks offers certain growth with relatively little volatility over the course of the foreseeable future, at least five to ten years down the line.
- Other brands with good millennial affiliations include Samsung, Microsoft, Coke, and Amazon. While these four companies are in the midst of some financial turmoil, with Samsung in particular on a straight downward slide in 2015, a strong earnings report for two or three consecutive quarters should put them on your investment radar.