Step aside, millennials. It’s time for Generation Z to shine.
Generation Z — or individuals born between the mid-1990s and early 2000s — are increasingly becoming the most important demographic in the U.S. economy. These individuals are growing up, graduating, earning incomes and turning into full-blown consumers driving the all-important U.S. services sector (which accounts for about 80% of GDP).
Their direct spending power today? About $140 billion. They also influence another $600 billion in annual spend. Importantly, both of those numbers are only going up, and one day, they will far outweigh millennial spend.
The investment implication? Buy stocks of companies which Generation Z consumers like.
How did we judge that? Luckily for us, Piper Jaffray does a survey twice a year wherein they ask young consumers their tastes and preferences across a variety of industries. This semi-annual survey, dubbed Taking Stock With Teens, gives us a semi-regular pulse of Generation Z’s spending habits.
Don’t have time to go through all those surveys? Don’t worry. I’ve done the leg work here — and I’ve found a few compelling investment takeaways from the numbers. As such, without further ado, let’s take a look at seven hot Generation Z stocks to buy, based on Piper Jaffray’s surveys.
Hot Generation Z Stocks to Buy: Amazon (AMZN)
When it comes to Amazon (NASDAQ:AMZN), the Generation-Z-focused bull thesis is that Amazon has increasingly become the de facto shopping platform for young consumers.
In the Spring 2015 Taking Stock With Teens Survey, 36% of young consumers said that Amazon was their favorite shopping platform. By Spring 2016, that figure climbed to 41%. In Spring 2017, it hit 43%. In Spring 2018, it hit 44%. And, in the most recent Fall 2019 survey, Amazon’s mind-share expanded to 52%.
In other words, over the past four years, Amazon has expanded its mind-share as the favorite shopping platform among young consumers by 16 points — and they’ve done so consistently.
The takeaway? Young consumers love Amazon, meaning that as they earn more income over the next several years, they will spend more of that money on Amazon.com, which further means that Amazon’s retail revenues will continue to grow at a rapid rate. That sustained big growth in Amazon’s retail business will provide strong support for AMZN stock.
Generation Z consumers love athleisure brands — two of their top three clothing brands are athletic apparel brands, according to Piper Jaffray — and in the athleisure market, Lululemon (NASDAQ:LULU) is increasing young consumer mind-share at the most rapid rate.
In the Fall 2019 survey, Lululemon gained notable mind-share from both the Spring 2019 and Fall 2018 surveys, and hit a new survey peak as the No. 7 preferred clothing brand. This uptrend is nothing new. Over the past several years and surveys, Piper Jaffray has highlighted Lululemon as an out-sized mind-share gainer.
When breaking it down by demographics, it becomes clear that Lululemon has been very popular among high-income females for a long time, and that the brand is importantly gaining share in other demographics, like average-income and high-income males. This is no accident. Lululemon used to cater exclusively to the high-income female crowd, but they’ve pivoted their product portfolio over the past few years to be very relevant to many more demographics, including men.
The takeaway? Lululemon is going from a niche, female-focused athletic apparel brand, to broad, multi-gender athletic apparel brand with mainstream appeal. This pivot is going well, and so long as it does go well, Lululemon’s growth trajectory will remain robust. A robust growth trajectory will keep LULU stock on a healthy uptrend for the foreseeable future.
V.F. Corporation (VFC)
Athleisure brands dominate Generation Z’s list of preferred clothing brands. But, one non-athleisure brand that has shown impressive strength over the past several years is Vans, which is owned by V.F. Corporation (NYSE:VFC).
Specifically, Vans has been the second-most preferred footwear brand in Piper Jaffray’s surveys for several years running. Perhaps more impressively, mind share for Vans as a preferred footwear brand has climbed from 9% in Fall 2015, to 20% in Fall 2019 — a strong 11 points of mind-share expansion in just four years.
Of notable footwear brands in Piper Jaffray’s survey, that marks the biggest mind-share gain over the past four years.
The takeaway? Vans is dominating the non-athleisure footwear scene among Generation Z consumers, and because athleisure doesn’t appeal to everyone, this positioning is extremely valuable. Not surprisingly, as Vans has been hot over the past several years, so has VFC stock. Thus, if Vans stays hot for the next several years, too, VFC stock will naturally stay on an uptrend.
There has been a lot of talk recently about how Netflix (NASDAQ:NFLX) is losing its lead in the streaming TV world. But, according to Piper Jaffray’s surveys, this is not happening among young consumers.
For the past several years, Netflix has maintained 35-40% mind-share in Piper Jaffray’s surveys in the “preferred channel for daily video consumption” category, with it and YouTube dominating Gen Z’s video consumption. Of note, since the Fall 2015 survey, cable TV’s mind-share in this category has dropped 17 points to 12%.
Broadly, then, what we are seeing unfold in Generation Z is a secular pivot from cable to streaming TV, which is creating a rising tide that is lifting all boats in the streaming TV world — namely, Netflix and YouTube. So long as this pivot keeps playing out (and it should, given that most consumers today still pay for cable TV), then Netflix won’t be at risk to competitive threats.
The implication? Netflix will keep adding subs at a healthy pace over the next several years, and recent weakness in NFLX stock will turn into longer-term strength.
The ugly shoe trend is in, and that has been a huge win for casual footwear brand Crocs (NASDAQ:CROX).
In the Fall 2019 Taking Stock With Teens Survey, Crocs was highlighted as a notable mind-share gainer – the first time it has been highlighted as such in any Piper Jaffray Taking Stock With Teens Survey. Thus, for the first time in several years, Crocs is gaining significant mind share among young consumers.
Why? Two things. First, the ugly shoe trend. Ugly shoes that prioritize comfort over style are in, because they are somewhat of an ironic fashion statement that say: “I’m so cool, I don’t need cool shoes to be cool, so I wear purposely ugly but super comfy shoes”. Second, Crocs has done everything right to capitalize on this trend. That is, management has cut SKUs and hyper-focused resources and efforts on the signature foam clog. In so doing, management has turned the signature foam clog into an icon of the ugly shoe trend.
The results? Crocs is firing off its best growth rates in several years, and CROX stock has sprinted to decade highs. Piper Jaffray’s recent survey results indicate that this tend remains alive and well, meaning that CROX stock should stay on an uptrend for the foreseeable future.
Generation Z is obsessed with make-up spend, and their favorite place to buy make-up products is Ulta (NASDAQ:ULTA) — by a wide margin.
In the Fall 2019 survey, Ulta registered as the most preferred cosmetics shopping destination among young consumers, with 38% mind-share. That’s up an impressive 10 points from the Spring 2018 survey. At the same time, the No. 1 preferred cosmetics shopping destination back in Spring 2018 — Sephora — has shed 18 points of mind-share since then.
The implication? Ulta is doing something right, and they are consequently dominating the cosmetics retail scene.
That “something right” is becoming the go-to physical distribution platform for exclusive, direct-only cosmetics brands. That is, Ulta is becoming an exclusive physical distributor for some of the hottest brands in make-up, many of which are only available on their own websites and at Ulta stores. In winning exclusive distribution partnerships with these high-demand brands, Ulta has strengthened its leadership position in cosmetics retail.
In other words, Ulta has found a winning strategy in the cosmetics retail market. They will continue to turn this winning strategy into big growth numbers over the next several years, and as they do, ULTA stock will march higher.
Last, but not least, on this list of hot Generation Z stocks to buy is Apple (NASDAQ:AAPL) — a company that registered all-time-high mind-share in the most recent survey.
Specifically, in the Fall 2019 Taking Stock With Teens Survey, 86% of teens said that they expect an iPhone to be their next phone. That’s an all-time survey high. Perhaps more impressively, this metric has been making new highs in Piper Jaffray’s surveys essentially every year since 2015.
In other words, Generation Z consumers love iPhones, and that love is only growing. There is no switching happening here. Apple has been, still is, and projects to remain king in the smartphone market among young U.S. consumers.
The implication? Apple’s hardware business isn’t dead. Sure, there aren’t that many new smartphone buyers out there. But, not many people are switching, either, and everyone still needs to upgrade every few years. Thus, Apple’s hardware business projects as a stable growth business, powered by upgrade buyers and higher selling prices.
On top of a burgeoning software business, that should help support long-term strength in AAPL stock.
As of this writing, Luke Lango was long AMZN, LULU, NFLX, CROX and ULTA.