Millennials make up the largest generation in U.S. history, so companies are paying lots of attention as they enter their peak spending years. Stocks over the next two decades will likely rise and fall from the spending power of the millennial generation, so you might as well harness the power of that while investing in the stock market.
But what strategy should young investors use? What will millennials spend their money on? Which companies might still be doing well in 20 years?
“The biggest decision you can make is to invest early and invest in the stock market,” says James Fletcher, a portfolio manager at Kayne Anderson Rudnick in Los Angeles. “You can do your homework and invest in sound companies you believe in, or you can just buy an [exchange-traded fund] or index fund to get you market returns. They will both do well over the long run, as long as you invest early, don’t panic or try and time the market.”
The biggest returns are in the stock market. Investing $1,000 per year, starting at age 15, could mean an extra $1 million in your retirement portfolio, assuming a 10 percent annual return, Fletcher says.
Here are 11 investing ideas for millennials:
Facebook (ticker: FB). With its revenue soaring — FB stock is up 15 percent in just the last week — Facebook has nearly 1.6 billion monthly active users and 100 million hours of video streamed each day. “Other millennial favorites like GrubHub (GRUB) and GoPro (GPRO) have been hit hard recently — we don’t believe they have long-term growth prospects the way that Facebook does,” says Jane Barratt, founder of GoldBean, a subscription-based investment advisory service in New York.
But with Snapchat on the rise, does Facebook have room to grow in the next 20 years? It depends on how much weight you put into virtual reality.
Facebook’s purchase of the popular virtual reality maker, Oculus, as well as social messaging platforms like Instagram and WhatsApp give it huge growth potential, says Mike Ser, a partner at Serman Traders in Toronto. “Facebook has done exceptionally well since the acquisitions of Instagram, WhatsApp and Oculus, with their stock price rising as much as 500 percent since 2013, and it is currently up 27 percent from last year,” he says.
Alphabet (GOOG) and Starbucks Corp. (SBUX). Wall Street doesn’t pay enough attention to corporate culture, even though culture is what defines a company’s long-term prospects, says Claudio Brocado, and independent portfolio manager in Boston. “Millennials (more than previous generations) seem to try to align their consumption to companies in which they believe,” he says.
So companies that do the right thing just might excel in the future with millennials’ support.
“GOOG and SBUX are great examples of specific candidates for millennials’ savings, and both have fantastic corporate cultures,” Brocado says. “A key feature of the culture of both is a very strong focus on the long term. They both treat their employees extraordinarily well.”
Part of that is fostering a great corporate culture for employees to work in, which leads to a productive cycle of employees delighting their customers, anticipating their needs and surprising them by exceeding their expectations. This virtuous cycle results in extraordinarily strong financial results in the long run, with the stock price adequately following suit, Brocado says.
“Both companies have achieved a high level of customer trust,” he says. “They have developed strong global brands that command significant customer loyalty. As a result, both have experienced strong growth.”
Tesla Motors (TSLA) and Amazon.com (AMZN). “Sectors besides technology that millennials care about are sectors that are environmentally friendly and clean energy,” Ser says. That makes Tesla a top choice, as the company is still the leader in electric vehicles and growing fast.
While Tesla’s Model S runs a pricey $75,000, the company plans to unveil the Model 3, valued at about $35,000, to appeal to a middle-class customer base. “Tesla’s stock price has been one of the best performers on the Nasdaq exchange since 2013, as the stock price has risen as high as 800 percent,” Ser says. “The euphoria over the stock has faded a bit, but so far the stock is down 5 percent since 2015.”
Barratt says companies like Tesla and Amazon are good for people “intent on catching the next wave of growth” because they are “producing products of value and disrupting existing markets.”
Amazon is a perfect example of not getting spooked by a quarterly hitch or a reactive dive in stock prices. Although Amazon missed analysts’ expectations when it announced earnings last week and its stock dropped, it is still showing 24 percent growth. Net profits in the fourth quarter were $482 million, an increase from $214 million a year ago.
“It’s all about growth and finally generating a profit. Amazon Web Service is massive and should drive strong growth,” Barratt says.
Chipotle Mexican Grill (CMG) and Whole Foods Market (WFM). These two millennial favorites have been beaten up recently. “The key thing that millennials should ask themselves is this: ‘Will this company continue to grow and produce products with a great competitive edge? … Can I see myself or my friends still spending money with them in five or 10 years?'” Barratt says.
Chipotle has been hit by a smattering of bad news and lawsuits caused by dozens of food-related illnesses in its restaurants, but it is moving forward with plans to rebuild the brand. Barratt says new investors should wait until after Chipotle reports earnings this week before taking a new position.
Whole Foods’ potential for growth is evident from the crowds of millennials who crowd into the store for their weekly groceries. “Whole Foods has good numbers and slow but steady growth, with a price-to-earnings ratio of 19 and a forward P/E of 17. This is a solid business, and the price should find a bottom soon,” Barratt says.
Apple (AAPL). Apple’s stock price has been on a steady rise since 2013, with AAPL stock up more than 100 percent. But 2015 was more difficult with concerns of slowing growth from China. Last week’s earnings report saw Apple miss analysts’ expectations on iPhone and iPad sales, and there are indications that the number of units sold this quarter will actually drop.
But Apple is still one of the strongest stocks on Wall Street, with a strong balance sheet with billions of cash, Ser says. The company is expected to announce its iPhone 7 in 2016, so it should be positioned for strong growth in 2016.
Emerging markets: China, India and Brazil. Keep your eyes out for opportunities from these countries. The world will be a different place 30 years from now.
“The world is shifting, and in the lifetime of millennials, a lot of the growth in the world will come from the development of emerging economies such as China, India and Brazil,” Fletcher says. “Don’t fight it, invest in it. There will be fantastic investment opportunities that will arise as billions of people across the world leave poverty and enter the middle class.”
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11 Hot Investing Ideas for Millennials originally appeared on usnews.com
