Like previous generations before them, the millennial generation has redefined American retailing. Born between 1981 and 1996, most are children of baby boomers. As such, this generation has become both sizable and influential. This affects the retail industry which serves it, and this has already begun to affect retail stocks to buy.
The stocks of companies such as Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) find themselves trading at higher price-earnings (P/E) ratios, due in no small part to their millennial appeal.
While this generation may have rebelled against their baby-boomer parents in some respects, baby boomers established and grew many of these companies.
Now that they have handed the baton to their millennial children, millennial tastes now redefine stores created by previous generations. These five retail stocks to buy enjoy widespread millennial support, yet also trade at levels that would appeal to investors.
Millennial Retail Stocks to Buy: Apple Inc. (AAPL)
Most define Apple (NASDAQ:AAPL) as a brand, or a line of products, rather than a store. That remains true, but it’s of the retail stocks to buy by virtue of operating 503 stores throughout the world, including 272 in the United States.
While many stores at the mall will appear to have more employees than customers, Apple stores seem overrun. Many of these customers hail from the millennial generation. According to Fortune, no other brand ranks higher in emotional attachment than Apple. Through devices such as iPhone, they connect with favorite millennial brands like Amazon. They can also run popular Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) apps, such as Google or YouTube.
Despite this appeal, AAPL stock will attract millennial grandparents such as Warren Buffett, one of its more prominent investors. AAPL stock maintains a P/E ratio of around 19.5. Analysts also expect average annual growth of about 13% over the next five years. Still, with its market cap exceeding $1 trillion, it will hold more appeal to those wanting to preserve rather than grow wealth at outsized rates.
Many will want a conservative investment offering growth bolstered by millennials. For this purpose, few retail stocks to buy will serve as a better choice than AAPL stock.
Millennial Retail Stocks to Buy: Dollar Tree Inc. (DLTR)
Although a vibrant job market now blesses some millennials, many live with their parents and find themselves mired in student loan debt.
Even among millennials who can afford more affluent lifestyles, many prefer to spend the minimum on necessities to leave more money available for the experiences they cherish. Both trends lead millennials into stores such as Dollar Tree (NASDAQ:DLTR) to provide life’s necessities at lower prices.
With its acquisition of Family Dollar, the company now operates about 14,800 stores in the United States. It also runs just over 200 Dollar Tree stores across Canada. This makes it almost as large as Dollar General (NYSE:DG), its primary rival.
At around $94 per share, investors will not find DLTR stock at a dollar store. Still, they will like the reasonable valuation. DLTR currently trades at a forward P/E ratio of 17. Moreover, analysts expect to see net income grow by an average of 13.6% per year over the next five years.
DG stock and DLTR stock closely match one another. Both stocks trade at about the same PE and closely match one another on growth rates. However, Dollar Tree has ranked higher among millennials. Also, with Family Dollar in the fold, the company captures those looking for the lowest price (Dollar Tree) and those willing to pay higher nominal prices for more product (Family Dollar).
Considering the appeal to both millennial customers and investors, Dollar Tree had stood out among retail stocks to buy for millennial-focused investing.
Millennial Retail Stocks to Buy: Home Depot (HD)
Our own Aaron Levitt described Home Depot (NYSE:HD) and millennials as “a match made in heaven.” While I might not personally go that far, the company has indeed become one of the better retail stocks to buy because of a focus on millennials.
Home Depot has responded by offering online videos and in-store workshops on tools they did not learn to use in younger years. As a result, the company now credits much of its sales growth to customers in the millennial age group.
Also, millennials may not have as much trouble affording a home as some people believe. According to a survey by Bank of America (NYSE:BAC), millennials now enjoy a 40% homeownership rate. Moreover, most do not live in urban areas. This would place them closer to where more Home Depot stores are located. As a result of their efforts and improving trends, Home Depot ranks as their top choice for home improvement over archrival Lowe’s (NYSE:LOW).
HD stock also happens to trade at a favorable valuation for investors. The stock stands at a forward PE of about 21. Analysts also expect an average annual growth rate of around 14.9% per year over the next five years. The stock’s dividend yield of around 2.05% comes in slightly higher than current S&P 500 averages.
However, the dividend has increased every year since 2010. With these consistent dividend hikes, HD stock could provide a substantial payout in the coming years to long-term investors.
Admittedly, Lowe’s financials closely match Home Depot. However, as long as Home Depot holds the greater appeal to millennials, I think the advantage goes to HD stock.
Millennial Retail Stocks to Buy: Starbucks Corporation (SBUX)
Another company that ranks near the top with regards to millennial emotional appeal is Starbucks (NASDAQ:SBUX). Millennials also became the first generation to grow up with a Starbucks on every corner. As a result, they grew up with more coffee and more varieties of coffee than previous generations.
Moreover, as more activities moved to online platforms, Starbucks gained appeal as a place to meet in person. Starbucks reinforces this appeal through marketing via social media and “speaking their language.”
This allure also extends to SBUX stock as it stands out with millennials as one of the great retail stocks to buy. The stock has struggled this year. Still, Robinhood, a trading app frequently used by millennials, shows that this generation continues to open positions in SBUX stock.
They may see a lucrative opportunity. Range-bound trading has defined SBUX stock for the last three years. As a result, their P/E has fallen to about 21.8. The stock has not traded at a valuation this low for many years. Profit growth will also remain in the double digits, with average growth of 13.9% per year expected for the next five years. Also, its dividend, which began in 2010, has increased every year since inception. It has risen to $1.44 per share, a yield of almost 2.75%.
With store growth reaching a saturation point in the United States, offshore markets, particularly China, will drive the future of SBUX stock. Domestic stores still need to increase same-store sales to remain viable. Most of that increase will likely come from the millennial generation.
With that, the millennial connection will help boost SBUX stock for years to come.
Millennial Retail Stocks to Buy: Target Corporation (TGT)
Contrary to popular belief, two-thirds of millennials shop in stores on a weekly basis. Among general merchandise stores, they prefer Target (NYSE:TGT) more than any other store. One survey ranked Target the 4th most popular brand among millennials earlier this year. This comes in higher than Walmart, and interestingly, e-commerce giant Amazon.
The company has lived up to its name regarding its recent focus on millennials. They phased out some old brands in favor of new lines of clothing and home goods. As millennials tend to prefer unique offerings, these private label brands such as Goodfellow & Co. and A New Day will bring customers into stores, or at least onto Target’s website.
Like other brick-and-mortar retailers, they have also expanded online offerings and introduced in-store pickup. In an attempt to revamp grocery offerings, the company has focused on offering more organic, natural, and gluten-free items.
Among retail stocks to buy, TGT stock also provides an opportunity for investors. It has moved higher from 2017 levels when most seemed to fear an Amazon retail takeover. Despite substantial increases from year-ago levels, TGT stock trades at 16.3 times forward earnings. Thanks in large part to online sales, Wall Street predicts 13.4% growth this year. They also believe growth will average 7.5% per year over the next five years.
Also, the dividend recently went up to 64 cents per share per quarter. This payout, which has increased every year since 1972, yields over 2.9%. The continued profit growth should assure investors that this long-time dividend streak will not fall anytime soon.
With the revamped product lines and the attempts to combine online and in-store shopping options, Target should continue to win over a new generation of shoppers. Moreover, the low valuation and the increasing dividend should also boost TGT stock. Given these factors, Target should continue to increase its popularity with millennials and investors alike.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
