When it comes to investing, especially in hot stocks, it is important to pay attention to consumer trends. After all, consumer trends dictate fundamentals, and fundamentals dictate stock prices. Ultimately, then, consumer trends dictate stock prices.
Where do trends start? Normally, they start in younger demographics. Specifically, they start in the teenager demographic. Once the mass teenager demographic adopts a trend, that trend becomes huge and starts to influence the financials in a serious way. Once the financials get impacted, stocks move. Thus, the key to investing in hot stocks is identifying budding trends that teenagers are starting to adopt.
What is the best way to do that? Take a look at Piper Jaffray’s semi-annual Taking Stock With Teens Surveys. Twice a year, Piper Jaffray surveys thousands of teenagers across the United States about their favorite brands, services and platforms. The results are often quite profound, and have meaningful investment implications.
Piper Jaffray just released Fall 2018 Survey results. What are the investment implications? Let’s take a closer look.
Teenagers still can’t get enough of athletic apparel brand Nike (NYSE:NKE). Nike remains the number one clothing and footwear brand among U.S. teens. That has been the case for several years now. Nike is also the number two shopping website among U.S. teens, something which has also been the case for several years.
More importantly, the fashion trend seems to be flipping in favor of Nike. Over the past several years, while Nike has remained number one, its footwear mind-share has slipped while Adidas (OTCMKTS:ADDYY) footwear mind-share has grown. But, that trend is on the cusp of reversing. In the Fall 2018 survey, Adidas footwear mind-share flattened out at 14%, while Nike footwear mind-share flattened out just above 40%.
In other words, Nike remains the hottest clothing brand among teenagers, and should also benefit from the fashion trend moving in its favor over the next few quarters. This puts NKE stock, which currently trades at a reasonable valuation level and has big growth drivers, in a favorable position to climb higher for the foreseeable future.
Linear TV is out. Internet TV is in. This trend is true everywhere, but it is most true for teenagers who have grown up in a world where on-demand streaming services are the norm. Among that trend-immersed cohort, Netflix (NASDAQ:NFLX) is the undisputed leader in the internet entertainment category.
In the Fall 2018 survey, Netflix had 38% mind-share for daily video consumption. Back in the fall 2015 survey, Netflix also had 38% mind-share for daily video consumption. In other words, Netflix’s mind-share has stabilized just shy of 40% over the past several years despite rising competitive threats from Hulu, AT&T (NYSE:T), Disney (NYSE:DIS) and others.
That is a favorable trend for Netflix. And, it lines up perfectly with Netflix’s numbers, which show that this company’s growth trajectory isn’t slowing down at all despite rising competition. Although the stock will have frequent bouts with valuation questions, so long as these long-term fundamentals continues to improve, NFLX stock should head higher.
Alphabet (GOOG, GOOGL)
Sticking with the “internet TV is hot” theme, another winner in this category is Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Indeed, one could argue that Alphabet, despite it’s internet TV service YouTube having lower mind-share than Netflix, is the big winner in this space. Why? Mind-share expansion.
Back in the Fall 2015 survey, YouTube had just 21% mind-share for daily video consumption. That grew to 26% in the Fall 2016 survey, and 29% in the Fall 2017 survey. In the Fall 2018 survey, it jumped all the way to 33%.
In other words, YouTube has gained 12 points of mind-share over three years while Netflix has simply been stable. Thus, although the whole internet TV trend is growing, YouTube appears to be the fastest growing service in that space. This is undeniably a material positive for GOOG stock, which needs YouTube ad revenue growth to offset potential Google search revenue churn from Amazon competition.
Ulta Beauty (ULTA)
In the beauty category, Ulta Beauty (NASDAQ:ULTA) was the clear winner in the Fall 2018 survey.
In the Spring 2018 survey, Sephora dominated Ulta in terms of beauty destination mind-share. Sephora registered 44% mind-share. Ulta came in with just 28% mind-share. But, the Fall 2018 survey painted a completely different picture. Sephora’s mind-share dropped to 34%, while Ulta’s mind-share rose to 34%. In other words, in just a few months, Ulta managed to steal a ton of mind-share from Sephora.
How? The big catalyst here is likely celebrity Kylie Jenner, who is debuting her cosmetics line at Ulta stores this holiday season. Hype regarding this roll-out likely improved Ulta’s visibility and relevance, and improved traffic trends even ahead of the launch. These gains should continue post-launch, and perhaps with even more momentum. Thus, ULTA stock looks positioned to ride Kylie-related tailwinds to more gains in the future.
Although the smartphone market globally may be reaching saturation, that doesn’t mean Apple (NASDAQ:AAPL) is done growing its iPhone install base. Instead, Piper Jaffray survey results indicate that Apple is currently growing and will to continue to grow smartphone market share over the next several years.
In the Fall 2018 survey, intent to buy an iPhone hit a new high at 86%. This continues what has been a multiyear uptrend in iPhone buying intentions among U.S. teenagers. So long as this trend persists, Apple has room to grow its iPhone install base through market share expansion.
iPhone buying intentions are rising alongside higher iPhone prices. Thus, $1,000-plus prices aren’t scaring away trend-oriented consumers, and that means that in the long run, Apple also has a tremendous opportunity to grow iPhone revenue through consistently higher ASPs. In the big picture, continued strong iPhone growth on top of recently red-hot Services growth should continue to power AAPL stock higher.
Hot Stocks That Teenagers Love: VF Corporation (VFC)
VF Corporation (NYSE:VFC) finds itself on this list because the company owns the Vans brand, and Vans have been one of the hottest trends among U.S. teenagers for several quarters now.
In the Fall 2018 survey, Vans hit an all-time high in mind-share — led by females, where Vans came in as the number one footwear brand for upper-income females. Increasing brand relevance for Vans is nothing new. This has been a powerful multiyear trend. In the Spring 2017 survey, Vans had footwear mind-share of just 9%. That rose to 12% in the Fall 2017 survey, 16% in the Spring 2018 survey, and 19% in the most recent Fall 2018 survey.
In other words, Vans has been and remains one of the hottest trends as streetwear styles have made a comeback. This positions VFC stock, which is currently quite cheap at just 19X forward earnings, to remain a near to medium term winner.
It is no secret that the main Facebook (NASDAQ:FB) app continues to lose relevance among teenagers. In the Fall 2018 survey, only 5% of teens listed Facebook as their favorite social media app, versus 8% in the Spring 2018 survey and 23% way back in 2014.
But Facebook-owned Instagram? It’s the hottest trend in social media and just overtook Snapchat (NYSE:SNAP) in terms of usage. While more teens list Snapchat as their favorite app than Instagram, Snapchat’s mind-share has plateaued just shy of 50% for several quarters now. Meanwhile, Instagram’s mind-share has risen from the lower 20’s to the lower 30’s.
Also, more teens now use Instagram on a monthly basis than do Snapchat, according to Fall 2018 results.
In the big picture, then, Facebook is keeping users in its ecosystem. The kids may be leaving Facebook, but they are as addicted as ever to Instagram. That means Facebook will still be able to monetize those users, giving Facebook stock a ton of firepower for long-term revenue and profit growth.
Teenagers are finally eating at Chipotle (NYSE:CMG) again, and that is a good sign for Chipotle’s long overdue recovery.
Before all of Chipotle’s health issues went mainstream, it was consistently a top-3 restaurant in Piper Jaffray’s surveys with mid-teens mind-share. That all changed after the health issues became well known. Chipotle’s mind-share dropped to 7% among upper-income teens and below 4% for average-income teens in the Spring 2018 survey.
The Fall 2018 survey suggests that a turnaround is underway. Chipotle’s mind-share among upper-income teens rose to 8%, and among average-income teens, it rose to 4%. Those mind-share gains made Chipotle a top 5 restaurant destination among both average and upper-income teens in the Fall 2018 survey for the first time since Spring 2017. If this brand resurgence persists, CMG stock could continue to rally.
While Chipotle has struggled with brand relevance in the restaurant category over the past several years, McDonald’s (NYSE:MCD) has flourished thanks to a revamped marketing strategy and expanded menu.
Back in the Spring 2015 survey, McDonald’s wasn’t a top-5 restaurant and had lower than 3% mind-share. But, the company started showing signs of life in the 2017 surveys, and is now building on that success. In the Fall 2018 survey, McDonald’s was a top restaurant among both upper-income and average-incomes teens, with 4%-plus market share for both cohorts.
Clearly, the McDonald’s revamp has worked, and teens are starting to dine there with more frequency than they have in recent memory. If McDonald’s can continue to innovate its menu to spark renewed brand relevance, then MCD stock should continue to be a winner.
Michael Kors (KORS)
Fashion designer brand Michael Kors (NYSE:KORS) remains the handbag leader among U.S. teenagers, and that positions this company for stabilized success over the next several years.
In the Fall 2015 survey, Michael Kors had 31% mind-share in the handbag category. Michael Kors had 30% mind-share in the handbag category in the Fall 2018 survey. In other words, in the usually highly cyclical handbag industry, Michael Kors has maintained leadership position and stabilized mind-share around 30% for three years.
That is a testament to this company’s staying power in the handbag category. So long as Michael Kors remains the handbag leader, KORS stock should perform well — pending broad consumer and economic strength.
Just like internet TV, e-commerce remains one of the biggest trends in the consumer-facing world. This is especially true for teenagers, who have grown up in a world where digital shopping is the norm. Among that trend-oriented cohort, Amazon (NASDAQ:AMZN) is the runaway e-commerce leader.
Back in the Fall 2015 survey, Amazon registered 38% mind-share as the top shopping website. That mind-share has steadily grown ever since, and is now hovering around 50%. With the exceptions of Apple and iPhone buying intentions, Amazon’s 50% mind-share in digital shopping is unparalleled across the Piper Jaffray surveys.
Amazon is currently on trajectory to have as much influence and reach in the digital shopping world as Apple has in the smartphone community. So long as Amazon remains on that trajectory, AMZN stock will continue to be a big winner.
Foot Locker (FL)
The Fall 2018 survey had some new entrants. Notably, Foot Locker (NYSE:FL) cracked the top-5 footwear brands list for the first time in recent memory. Granted, it was only 3% share, but it is still notable that Foot Locker wiggled its way into the top 5.
A lot of this could be due to Nike’s rising relevance. Foot Locker and Nike have a deep connection. Indeed, most of what Foot Locker sells is premium Nike product. Thus, as Nike’s brand relevance rises, Foot Locker’s brand relevance rises, too.
The same should be true for the stock prices. But, NKE stock has already taken off to all-time highs, while FL stock remains well off peak levels. If Foot Locker can maintain a strong connection with Nike, then FL stock should inevitably follow in NKE’s footsteps and roar higher.
One of the biggest findings from the Fall 2018 survey is that video games are red hot. As a percent of the male wallet, video game spend hit a new survey peak. Digital downloads also hit a new peak. This finding is favorable for all video game publishers. But, it is especially favorable for Activision (NASDAQ:ATVI).
Activision’s latest and greatest game, Call of Duty: Black Ops 4, has been a smashing hit. It broke sales and engagement records, and everyone seems to love it. Considering the backdrop for video games is exceptionally favorable right now, it looks increasingly likely that Activision is making a ton of money off of Black Ops 4.
This is all great news for ATVI stock. The stock has been punished in the recent tech sell-off, but the fundamentals remain exceedingly favorable. As such, this stock could be due for a nice end-of-year bounce.
The other video game stock that is an especially big winner as a result of peak video game mind-share this holiday season is Take-Two (NASDAQ:TTWO).
For all intents and purposes, the whole Take-Two narrative has been building to this holiday season. Red Dead Redemption 2 launches in late October, and this game is expected to break all sorts of records. TTWO stock has been rallying into this catalyst. That means that expectations are high, and that this could easily become a “sell the news” event.
But, launching this highly anticipated game at a time when video game mind-share just hit a new peak is a recipe for success, not disaster. As such, it looks likely that Red Dead Redemption 2 impresses. If it does, then TTWO stock should end the year on a high note.
Among the U.S. teenager demographic, Chipotle is making a comeback and McDonald’s has been on a nice uptrend. But, the one fast casual chain that has been steady through it all is Starbucks (NASDAQ:SBUX).
In the Fall 2018 survey, Starbucks was the only publicly traded restaurant chain with double-digit mind-share. This is nothing new for Starbucks. The coffee chain has consistently maintained 10%-12% mind-share for several years now, and there hasn’t been much fluctuation in the numbers.
In other words, despite rising competition from McDonald’s and indie coffee shops, Starbucks’ popularity among U.S. teenagers hasn’t wavered by much. That means that while growth may be slower going forward, Starbucks have long-term staying power in the coffee game. This long-term staying power will inevitably drive long-term gains for SBUX stock.
As of this writing, Luke Lango was long NKE, NFLX, T, DIS, GOOG, ULTA, AAPL, FB, MCD, AMZN, FL, and ATVI.