In the 1980s and '90s, an investor theme emerged that likely
played a role in a 20-year upward move for thestock market .
In that era,baby boomers reached financialmaturity , spending
hundreds of billions of dollars on housing, leisure,
retirementsavings plans, transportation and many other
categories. Financial pundits sought ways to suggest profitable
ways to trackbaby boomer spending, coining the phrase
Of course, as the oldest baby boomers (born right after World
War II) are now near retirement, and younger boomers pass their
peak spending ages as well, it's time to shift gears and focus on
the next massive demographic trend. The "millennials" or "echo
boomers," mostly born in the '80s and '90s, which are set to
overtake theeconomy . How big is this group? Demographers suggest
that there are (or were) 77 million baby boomers. The
millennials: 82 million.
|Skinflints Or Spendthrifts?
Across the national media, you'll read many stories about
how these millennials are flat broke, unable to move out of
their parents' homes, and saddled withlots of studentloan
debt and limited job prospects. To be sure, this group is
struggling right now. And somewill tell you that this group
will never have the financial prospects of their parents'
Yet we've heard this story before. Back in the 1970s, fears
of permanent economic stagnation led some demographers to
suggest that the "baby boom" was a financial bust. That
view proved to be quite short-sighted.
In a similar vein, when I got out of graduate school in the
early '90s, thejob market was locked shut, and a few years
of temp jobs led me to question my future. An eventual
economic boom helped me and my friends land on our feet and
do our patriotic duty: spend with abandon.
Today's millennials are poised for the same opportunity:
The U.S. economy is so large and resilient that the next
robust economic upturn is inevitable -- even if it seems to
be taking its sweet time getting here.
So how can youprofit from millennial investing? We can
already draw some early reads on their changing consumption
In contrast to their parents, millennials appear to want to
maintain a smaller environmental footprint, which likely
means smaller houses than the ones people my age grew up
in. These days, it's alot harder to find families with four
or five kids, as was often the norm back in the '70s. (I'm
the youngest of four, and between my three adult siblings
and I have a total of five kids. Average kids per
Indeed, the National Association of Homebuilders
anticipates rising demand for downsized homes in coming
Right now, homebuilders are benefiting from thesale of
larger, more expensive homes, largely because baby boomers
are still flush and millennials are still struggling.
That's playing right into the hand of high-end homebuilders
Toll Brothers (
But look for the tide to turn. As millennials approach
their 30s, they are likely to focus on smaller, less
expensive homes. As an investor, you should focus on
homebuilders that cater to this trend. For example,
D.R. Horton (
focuses on first-time buyers in their 20s and 30s. The
company's average price for a new home is around $230,000,
compared with around $300,000 for the rest of the industry.
2009acquisition of homebuilder Centex provided entry to the
starter-home market.Shares of Pulte have slid 35% since
mid-May on concerns that risingmortgage rates may impede
housingsales in the nearterm , but investors with a
long-term view of demographic changes should see that as a
There's bad news ahead for automakers: Millennials
increasingly prefer to live without cars, with many of them
choosing to live in urban environments. Of course, many of
them will move out to the suburbs once they start families,
but studies show that millennials simply don't have a
fascination with cars that their parents had. As a result,
look for fewer cars per household, and look for those cars
to last a very long time, as the trade-up trend starts
tofade . For investors, keep an eye on the automakers that
appear to be making clear headway with millennials.
, for example, has aggressively sought to brand itself as
an automaker with edgy styling, and a high level of digital
content in its interior.
, meanwhile, especially in its Cadillac and Buick
divisions, is still working to shed a perception among
millenials as a car their parents would prefer.
|The E-tail Onslaught
In an extension of a trend that has been underway for more
than a decade, look for more retail sales to take place
online and less in brick-and-mortar stores. Millennials are
becoming more deeply immersed in online spheres, as
evidenced by the fact that social media companies such as
Facebook (Nasdaq: FB)
continue to grow at a rapid pace.
"For the echo boom generation, 'showrooming' -- looking at
products on the shop floor, but turning to the Internet to
make the purchase at the lowest price -- is a way of life.
It is this demographic that already accounts for a
significant proportion of retail sales," according to the
Urban Land Institute.
As an investor, you should be spending more time
researching which online retailers are building a strong
and loyal base of customers. Conversely, you should tread
lightly with any legacy bricks-and-mortar retailer that has
failed to embrace the world of digital shopping.
Amazon.com (Nasdaq: AMZN)
is clearly the biggestbeneficiary of the shift to
e-tailing. but I highlighted a few other e-tailing firms
Along with "pure play" e-tailers such as
Blue Nile (Nasdaq: NILE)
Expedia (Nasdaq: EXPE)
, though many traditional retailers such as
Best Buy (Nasdaq: BBY)
are building huge online followings as well.
The millennials are much more ethnically diverse than their
parents, which is already affecting consumption trends. For
example, Spanish-language media and entertainment has grown
at a fast pace over the past decade, and even as many
Hispanic Americans eventually transition into
English-speaking households, they are still likely to be
avid consumers of Hispanic food and culture.
With a $12.5 billionmarket value ,
Chipotle Mexican Grill (CMG)
has surely been noticed by investors that understand the
fast-growing interest in Latin American food. But with a
market value of less than $600 million, lesser-known
Chuy's (Nasdaq: CHUY)
may be the betteroption in the dining scene.
|The Next Boom
Perhaps the single greatest spending trend in this group
will be in preparation for the next generation.
In a survey conducted by the Pew Research Center, only 15%
of milllennials expressed a desire to have a high-paying
career, while 52% of then expressed the desire to be good
parents as their No. 1 goal.
This suggests this this 82 million-strong demographic
will be buying a lot of baby formula and diapers, and
consuming a lot of educational programming on TV and
Then again, I recall being flat broke in my mid-20s, and
though it didn't make me want to be rich, I eventually
cared a lot more about earning a good living and owning my
own home than I did when I was in my early 20s. So maybe
these millennials will become as spendthrift as their
parents, even if they now profess otherwise.
Risks to Consider:
The millennial boom will take a number of years to reach full
fruition, so this isn't a strategy for short-term trades.
Instead, it's wise to start building a research list of
potentialbeneficiaries from this theme -- and be prepared to
pounce on them if they temporarily slump in value.
Action To Take-->
The millenials will only slowly become a powerful economic
demographic. That makes this a good time to study their
consumption patterns and start identifying the companies that
stand to most benefit from their comingwave of spending. The
decade ahead should show signs of rising spending from this
group, and by 2025, they will be approaching middle age, which
often represents the peak in discretionary spending for most
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