Part III: Cashing in on Millennials

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The economic torch is being passed from the Baby Boom generation to their Millennial children. The number of U.S. Millennials is estimated to surpass their parents in 2015. It is a world-wide phenomenon especially in the BRIC countries where millennials already make up between 27% – 30% of the overall population. The average age of  India’s workforce is 28 and 49 in China.

The 25 to 34 age group is becoming a powerful force due to improvements in job opportunities and wage growth. Experts believe that new family formations could reach 8.3 million by 2018 adding 2 trillion dollars of extra spending in the U.S. economy.

Millennials currently account for US$1.3 trillion in direct consumer spending in the United States, but that is expected to balloon rapidly. Bank of America Merrill Lynch estimates that millennials will account for 75 per cent of the workforce by 2025 and their combined income will hit US$8.3 trillion by 2025.

The head of Thematic Investing, Sarbjit Nahal at Bank of America Merrill Lynch was on Business News Network (BNN) this week. “Generation Next: how to make money off the millennials” Here are some of his comments which I found very interesting and somewhat amusing.

  • 73% of Millennials prime goal over the next 5 years is buying a house.
  • 87% of Millennials sleep with their smart phone
  • 50% of Millennials would give up their sense of smell before giving up their smart phone
  • 71% would rather go to the dentist than talk to a banker
  • 4 of 10 of the biggest U.S. banks are the least favourite brands of Millennials

It’s no secret that Millennials are attached to their mobile devices. They use social media to share which products and services that they like and don’t like. However, investing in the spending habits of Millennials can be risky because you have to distinguish what is a bona filed trend or just a fad.

“Sell the sizzle, not the steak” was a phrased coined by Wall Street stockbrokers while cold calling for new clients back in the 1980’s. What worked on the phone then, works on-line today!

Some examples of IPOs geared to millennials with a lot of sizzle are Groupon, Zulily, Twitter, Dropbox and Etsy. You would have lost money on these stocks if you bought them during the first few trading days. Even Facebook was hyped by Wall Street and it took over a year for the stock to surpass the sizzle price. (IPO – Initial Public Offering)

Here is a short list of some companies that Wall Street hopes will go pubic:

  • Pinterest
  • Spotify
  • Snapchat
  • Uber
  • Lyft
  • Tinder
  • Birchbox
  • Airbnb
  • Rent the Runway

Bank of America Merrill Lynch said “millennials likely won’t reach peak purchasing power for another five to 10 years, but added there are  different ways for investors to play the trend.”

They said some of the possible winners as millennials become parents include family oriented companies such as Walt Disney Co., Hasbro Inc. and Netflix Inc., as well as food companies like Starbucks Corp., Whole Foods Market Inc. and delivery service GrubHub Inc.

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I don’t own Netflix, Amazon or Chipotle because of the high growth valuation that Wall Street keeps pricing into the stock price. I plan on buying some Disney and Starbucks in the near future.  I have taken profits on both of these stocks and am hoping  for a pull back in their stock prices. Another stock that I have on my watch list is InterActiveCorp (IACI), a big bet on finding love on the internet!

IAC is  a media and Internet company.The Company is organized into four segments: The Match Group, Search & Applications, Media and eCommerce. The Match Group consists of dating, education and fitness businesses with brands, such as Match, OkCupid, Tinder, The Princeton Review and DailyBurn. Search & Applications includes brands, such as About.com, Ask.com, Dictionary.com and Investopedia. Media includes businesses, such as Vimeo, Electus, The Daily Beast and CollegeHumor. eCommerce includes HomeAdvisor and ShoeBuy.

What’s Hot, what’s Hype?  What is on your Millennial radar?

 

 

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One thought on “Part III: Cashing in on Millennials

  1. Another good article! I think one needs to look at the behavior of Millennials more than anything. They have trust issues, yet value authenticity. They tend to save their money rather than invest it and yet they love their vices. Stocks such as DIS, SBUX, AAPL, NFLX fit the profile the best in my opinion.

    Having young Millennials as children is interesting for me in that some of the things you mentioned in your article fit them and their behavior.

    Like

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