It’s finally time for Generation Z to step up, and step up they have.
Broadly defined as those born after the mid-1990’s, Generation Z is a big cohort. They account for more than a quarter of the U.S. population today. By the end of the year, they will be the biggest demographic in America, accounting for more than 30% of the total population.
Further, the majority of Generation Z-ers are now somewhere between entering high school, and a being few years out of college and into the workforce. That means they are starting to become consumers with incomes and buying power.
American Gen Z-ers already command nearly $150 billion in buying power. That number is only going up, as these Gen Z consumers are only getting older, richer, and more influential. By 2020, 40% of all consumers will be from Generation Z. By 2025, their purchasing decisions will be the single biggest driving force of the global economy.
What are these Generation Z consumers buying? What apps are they addicted to? What clothes are they wearing? Which brands do they like? What cars do they prefer?
Answer these questions, and you’ll equip yourself with a portfolio of investments that should generate huge returns in the long run.
In this gallery, we will attempt to answer those questions, and in so doing, will give investors a portfolio of Gen Z stocks that look positioned for big growth over the next several years.
Generation Z Stocks to Buy: Alphabet (GOOG)
The Short: The search platform Generation Z uses to learn about, find, and watch basically anything.
The Long: Internet giant Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is not a new company, nor is it a Generation Z-focused ecosystem. Everyone from kids to grandparents use Google Search, Gmail, YouTube, Google Maps, so on and so forth.
Alphabet has created a necessary ecosystem of products which, in sum, are an indispensable part of the internet experience. Want to find something online? You need to do a Google search. Want to watch a video online? You need YouTube. Guess what Generation Z consumers are doing everyday? Searching for stuff online, and watching videos online. Thus, guess what products Generation Z consumers are using everyday? Alphabet’s products, like Google and YouTube.
That’s probably why Google ranked as the top brand in Morning Consult’s survey of Generation Z consumers. YouTube came in at third.
With such huge Gen Z support, Alphabet’s ecosystem promises to have steady and healthy engagement over the next several years, which should lend itself to steady and healthy revenue growth, profit growth, and share price gains.
Beyond Meat (BYND)
The Short: The go-to “meat” option for Generation Z.
The Long: Veganism is cool now. The widespread emergence of social media and the internet has enhanced social and cultural awareness across the globe, so consumers everywhere are now all about feel-good trends like maintaining good health, saving the planet, and not killing animals. Consuming animal-based meats runs counter to those feel-good trends. That’s why about half of Generation Z consumers think being vegan is cooler than smoking, nearly 80% enjoy going “meat-less” a few times a week, and 60% want to make their diets more plant-forward.
In a nutshell, plant-based meat is the future. Over the next several years, plant-based meat will become increasingly available at fast food chains, restaurants, and in grocery stores. Generation Z consumers will meet that increasing supply with increasing demand. Within the next decade, plant-based meats will become a very big part of the global meats industry.
Right now, the face of this trend is Beyond Meat (NASDAQ:BYND). As Gen Z continues to pivot towards plant-based diets over the next several years, Beyond Meat will continue to benefit from surging demand, which should lead to long term gains in BYND stock.
The Short: Generation Z’s favorite and unchallenged streaming platform.
The Long: Who watches cable TV anymore? Not Generation Z consumers, who grew up in the era of streaming TV. According to a Piper Jaffray survey of high school students, only 14% of daily video consumption is dedicated towards cable TV (versus 26% in 2016). Nearly 40% share is allocated for Netflix (NASDAQ:NFLX).
There are two realities here. First, Generation Z loves streaming TV because it’s cheap, on-demand, and multi-platform. Second, Generation Z loves Netflix because Netflix has created several youth-focused original series and movies with young actors. Gen Z gravitates towards this content because the messages, story-lines, and characters are tangible and compelling.
With young consumers addicted to its platform and its content, Netflix seems positioned to continue to dominate the global streaming market for the foreseeable future. This is especially true considering, according to Morning Consult’s survey, Netflix is the number two preferred brand among Generation Z, while main competitor Disney (NYSE:DIS) is down at number 24.
Until that changes, Netflix will continue to grow by leaps and bounds in the global streaming TV market, and all that growth will ultimately propel NFLX stock materially higher in the long run.
Canopy Growth (CGC)
The Short: The company which will capitalize on Generation Z’s abundant cannabis usage.
The Long: The negative stigma surrounding cannabis has been significantly reduced over the past two decades, and as such, Generation Z is the first generation to grow up in a world where weed wasn’t commonly portrayed as a “bad drug,” and instead was more commonly portrayed as something akin to alcohol.
Because of this, Generation Z consumers in the U.S. are twice as likely to consume cannabis than the national average. At the same time, young consumers aren’t drinking as much as their parents, while monthly cannabis consumption rates among high school students are now nearly equal to monthly alcohol consumption rates (there was a wide divergence between the two 20 years ago).
In other words, for Gen Z, smoking marijuana is like drinking beer — if current trends persist, smoking will become more common and prevalent than drinking in some Gen Z circles. This trend is emerging at the same time that global legislation is progressing towards legalizing cannabis everywhere. The implication? The legal cannabis market is positioned for huge growth over the next several years.
Canopy Growth (NYSE:CGC) is the world’s largest cannabis company. They dominate the Canadian cannabis market, have several billion dollars on the balance sheet to fund huge expansion, have a leg into the U.S. market through a big acquisition, and project as the leader of the global cannabis market at scale. Thus, Canopy is set for huge demand growth over the next several years, the sum of which should propel significant gains in CGC stock in the long run.
The Short: The place where Generation Z goes to buy anything.
The Long: Gen Z consumers grew up in the era of Amazon (NASDAQ:AMZN). That means that for as long as these consumers can remember, Amazon has been the go-to, all-in-one online mega-store where you could get everything from clothes to electronics to toys.
That’s broadly why Generation Z consumers simply can’t get enough of Amazon. It’s cheap, has everything they could ever want, offers free shipping, is easy to use, and is pretty much all they’ve ever known. According to Piper Jaffray’s survey, Amazon.com is Generation Z’s favorite shopping website by a wide margin (50% mind share), while Morning Consult’s survey pegs Amazon as the fourth-favorite brand among Gen Z.
As such, it seems like Generation Z is married to Amazon as their favorite e-commerce platform. That’s huge. Over the next several years, all those Generation Z consumers will grow up. They will get jobs and incomes. They will spend those incomes. A big portion of that spend will make its way to the Amazon.com platform.
All in all, favorable demographics position Amazon for continued robust revenue growth over the next several years. That continued big growth will keep AMZN stock on a winning trajectory for a lot longer.
The Short: The only car company Generation Z cares about.
The Long: Generation Z consumers don’t really care about cars. After all, this is the generation that grew up in the sharing economy, with Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), so car ownership is somewhat of a foreign concept to many of them. According to data analytics platform TotalSocial, teen conversations on social media have migrated away from cars over the past few years, with most major car brands seeing their social media mentions from Gen Z consumers dropping big.
The exception here is Tesla (NASDAQ:TSLA). According to TotalSocial data, while many major car companies saw their social media mentions drop 20%-plus from 2013 to 2018, Tesla’s social media mentions actually rose by over 100% during that same time frame. It is, for all intents and purposes, the only cool car brand among Generation Z.
This makes sense. As mentioned earlier, Generation Z consumers are all about feel-good trends, like saving the world and stopping global warming. Gas-powered cars are one of the biggest contributors to global warming. Gen Z consumers have pivoted away from gas-powered cars and expressed a clear preference for Tesla’s electric vehicles.
Tesla is only widening its reach, with more cars at lower price points, while Generation Z consumers are only getting older and wealthier. This is a favorable convergence which will ultimately produce sustained huge revenue growth for Tesla in the long run. That sustained huge growth will drive TSLA stock materially higher over the long haul.
The Short: Generation Z’s favorite apparel brand in their favorite retail sector.
The Long: Athletic apparel is “in.” It is especially “in” among Generation Z, where consumers adopting feel-good trends such as eating healthy and staying fit have helped promote broader adoption of athletic apparel. According to Piper Jaffray’s Taking Stock With Teens survey, athletic apparel adoption among young consumers has been on an uptrend for most of this decade.
Nike (NYSE:NKE) is the undisputed king of this industry. Also according to Piper’s survey, Nike is both the top clothing brand by a wide margin, and the top footwear brand by a wide margin. Nike.com is also second-most preferred shopping website, behind Amazon.com. Even further, Morning Consult’s survey found that Nike is the 12th favorite brand among Generation Z, and the only apparel brand in the top 25.
Broadly, Nike is Gen Z’s favorite apparel brand. This should remain true for the foreseeable future. In this space, consumers follow their favorite athletes. Nike has the broadest and most impressive portfolio of athlete endorsements in the industry. Most of them are signed to huge multi-year contracts.
Big growth is here to stay for Nike in the long run. Such big growth will keep NKE stock on a winning path.
Domino’s Pizza (DPZ)
The Short: Generation Z’s favorite pizza parlor.
The Long: Although “Netflix & Chill” became the most popular Netflix slogan among Generation Z, another slogan which caught fire over the past several years is “Netflix & Chew.” This slogan involves sitting at home, watching a Netflix show or movie, and ordering a pizza from Domino’s (NYSE:DPZ).
How did this become a thing? Before delivery services were widely available, pizza parlors were among the few quick-service restaurants which offered delivery. In the pizza parlor world, Domino’s had differentiated itself in terms of menu diversity and pizza quality. As such, when Generation Z consumers got hungry in the middle of a Netflix show, they ordered Domino’s.
This tailwind has powered huge growth at Domino’s over the past several years. Not only has the company fired off multiple consecutive years of positive comparable sales growth, but according to TotalSocial data, the company’s social mentions among Generation Z have soared since 2013.
Growth is slowing now that everyone offers delivery (thanks, UberEats). But, Domino’s still holds a special place in Generation Z’s heart, given the company’s commitment to its digital efforts, and the at-home tailwind will remain in play for the foreseeable future.
Thus, growth trends at Domino’s should remain broadly favorable and power consistent long term gains in DPZ stock.
The Short: The platform Generation Z uses to listen to music.
The Long: Back in 2014, MP3 players, ad-supported Pandora radio, and local radio stations were the top three channels through which young consumers listened to music. Today, paid, ad-free, unlimited music streaming platforms are the go-to way young consumers access music.
That market is dominated by Spotify (NYSE:SPOT), especially among young consumers. With 100 million premium subscribers, Spotify is the world’s largest paid streaming platform. Further, a Streetbees survey found that Spotify is the favorite music streaming platform (paid or not paid) in Generation Z, with 36% of Generation Z consumers paying for Spotify. More importantly, nearly 60% of those same consumers said they intend to pay for Spotify in the future.
Spotify is Generation Z’s favorite music streaming platform, with an increasing number of consumers in that demographic turning into paid subscribers.
As this trend plays out over the next several years, Spotify will continue to report robust subscriber growth, which will power equally robust revenue and profit growth. This trio of big sub, sales, and profit growth will push SPOT stock higher in the long run.
The Short: The ecosystem of products Generation Z is addicted to.
The Long: Gen Z consumers grew up in the data economy, where their data was openly and freely exchanged for free usage of some of their favorite platforms, like Facebook (NASDAQ:FB), Instagram, and Messenger. As such, data-sharing was the norm, and these consumers are totally OK with their data being out there.
That’s why no one quit any of Facebook’s digital properties after the Cambridge Analytica scandal. It’s also why, even after that scandal, Instagram remains the most used social platform in Generation Z. Gen Z consumers simply don’t care about the data stuff. They are addicted to Facebook’s ecosystem of digital properties, and so long as those properties continue to yield value to them, they will stay addicted.
This is a favorable trend for Facebook’s business. Sustained big engagement means sustained big ad spend. Sustained big ad spend means sustained big revenue growth, which should keep FB stock on a long term uptrend.
As of this writing, Luke Lango was long GOOG, NFLX, DIS, CGC, AMZN, UBER, TSLA, NKE, DPZ, SPOT, and FB.