Investing in the Habits of Old and Young

Stocks that are well-positioned to benefit from two big demographic trends.

ByABC News
May 27, 2016, 9:38 AM
A millennial shops in a travel and outdoor equipment store.
A millennial shops in a travel and outdoor equipment store.
Predrag Vuckovic/Getty Images

— -- For decades, investors have been focused on companies that market intensively to the baby boom generation – people born in the nearly two decades after World War II. This kind of demographic investing, as it’s called, has become ingrained in the DNA of American markets. Just Google “baby boomer products and services” and you’ll find more than 1.3 million entries.

But while everyone has been fixating on the consumer whims of baby boomers, a larger demographic group has emerged and may well exceed the boomers’ influence. Millennials, generally defined as people born between 1981 and 1997, now number 75 million, according to Pew Research Center, compared with 74 million baby boomers.

Many areas of the economy – and the stock market – are driven by the spending of these two demographic consumer groups. These two groups potentially offer a fairly reliable investing strategy for individuals who are looking for the right companies at the right time at the right price.

These two generations are the big drivers of consumer spending, and will remain so for the next decade and beyond as millennials settle in to pay mortgages and save for their kids’ college educations and boomers move into their twilight years and assisted-living facilities. Here, then, are some pathways for investors in this two-pronged stock strategy.

Examples of companies that target millennials

Strong investment themes for this group include: retail brands such as Michael Kors, Nike, Under Armor, VF Brands (Wrangler, North Face, Timberland, Lee); retail outlets and enablers such as Amazon, PayPal, Yelp and Etsy; and, of course, social media and technology companies Facebook, LinkedIn, Yelp, Grubhub and Google.

For millennial dwellings, think in terms of both apartments (companies such as Equity Residential and Avalon Bay) and inexpensive single-family homes (Ryan Homes and Pulte Homes), spurring home improvement (Home Depot and Lowes).

Millennials like to have rewarding travel experiences, but unlike boomers, they don’t tend to care much about quality hotels or five-star lodging, so the focus here should be on tech tools for travel and entertainment, such as Expedia, Priceline, Tripadvisor and Live Nation Entertainment.

As millennials get older, they are marrying and having children, rechanneling their disposable income to products of companies such as Disney, Hasbro, The Children’s Place and Carters.

Millennials are more concerned with what’s in their foods than boomers were at the same age, and they tend to favor “natural” foods, focusing on locally-produced organic items. They like to shop at Whole Foods Market or Sprouts Farmers Market and eat at Zoe’s Kitchen. Many millennials got these inclinations from their parents, now boomers who themselves favor more healthful foods.

Thematic ETFs (Exchange Traded Funds) are available for investing in stock sectors marketing to millennials (for example, MILN).

Examples of companies that cater to boomers

Far more than millennials, boomers have money and invest it, so think Blackrock, Franklin/Templeton, Schwab, Fidelity and TD Ameritrade.

Their travel spending leans toward companies such as Carnival Cruise Lines, Royal Caribbean, Southwest Airlines and Starwood Hotels.