Seven stocks to buy to profit as Generation Z comes of age
Keeping an eye on young people’s spending habits can help you identify promising long-term investments, says Stephen Connolly.
You may not care much whether you’re considered a so-called baby boomer or a member of Generation X – but it matters a lot to some. Marketers and sociologists have built whole careers slicing and dicing society into different generations and telling us how they will behave or what they will buy. Companies and investors have been trying to get in on the act too. Pick up on the trends of the future, the thinking goes, and the profits are sure to follow.
It isn’t quite as easy as it sounds, of course. Holding a broad basket of stocks linked to, say, millennial themes (millennial applies to the generation born between the early-1980s and the late 1990s) hasn’t been especially rewarding compared to investing in global markets as whole.
For one thing, it’s not always clear which companies fit the bill. What are the hallmarks of a millennial business? Housebuilders and banks are helping them get hold of loans and property, for instance, but then they have older customers too. And even if you’re confident you’ve found a firm catering exclusively to a certain demographic, what if the managers are no good?
The “takeaway generation”
Still, don’t dismiss the generation game out of hand. Each one has distinct preferences. For instance, millennials’ emphasis on personal health and dislike of alcohol has reduced demand for beer; a plethora of online food delivery services has engendered a “takeaway generation”; and their preference for shopping online has contributed to the decline of the big department stores their parents used.
Being alert to and tracking consumer shifts early has helped investors profit from the winners and avoid the losers. Generational impacts go far and wide: brands such as Gillette have struggled because people shave less these days; toy sales have come under pressure as fertility rates have slipped; and even soap bar sales are down because younger millennials in particular see them as “germ bars”.
Such trends can strengthen as each generation swells. The youngest generation, for example, is Generation Z (Gen Z), comprising those born from the late 1990s onwards. Over time there will be billions of them – a huge group of consumers. They already fill universities, are entering the workplace and have started to earn.
There’ll be the usual milestones such as marriage, children and first family homes, each of which will affect businesses in unique ways. What types of weddings will people want in 15 years’ time? How may children will be affordable? Will people rent for even longer before buying homes? And what will they spend any spare money on?
The first clues to the future
One well-regarded study comes from the US investment bank and manager Piper Sandler. It’s been surveying thousands of Gen Z respondents for years. Reading the surveys allows us to gauge how teens are spending their money as well as their future aspirations within six broad areas: social media, shopping, make-up, clothing, dining and videogames.
We take nothing for granted from these young early consumers but they will come to dominate the business landscape – their thinking matters. Making an early attempt to link their perceptions and preferences with already well-regarded and successful companies could give investors’ portfolios a long-term fillip. So what do the surveys tell us? First, there are the “basic needs”, defined as electronics, cars and similar items. Then there’s the “selfie budget” which is about appearances and the perceived need to be selfie-ready – think clothes, shoes and personal care. And finally, the “social budget” which includes eating, music, movies and other entertainment.
A whopping 85% say they own an iPhone from Apple (Nasdaq: AAPL) and 88% say it will be their next phone too. As for social media, Instagram remains the most frequently used app, closely followed by Snapchat. The former, like message service WhatsApp, is owned by Facebook (Nasdaq: FB), one of the early social media pioneers and itself favoured by Gen Z, currently in fifth place.
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Stephen Connolly writes on finance and business, and has worked in investment banking and asset management for over 25 years (email@example.com)