Why buy baby boomer stocks? Holding half of U.S. household wealth, this cohort will help drive consumer spending for years to come. But, much more attention is paid to what they’ll leave behind. With this generation in its golden years, that’s no surprise.
Yet, we may be putting the cart before the horse. To get a clearer answer on boomers and generational wealth transfer, we asked Richard Stebbins, Assistant Professor at the University of Alabama. In an email to InvestorPlace, Professor Stebbins said, “I don’t agree with the premise that the boomers will soon be leaving behind massive estates.”
According to Professor Stebbins, boomers will receive “an expected $15 trillion in inheritances” over the next 20 years. In other words, boomers could benefit as much from generational wealth transfer as millennials.
Moreover, baby boomer wealth could help drive demand across many industries for years to come. Taking a look at large-cap stocks that fit this criteria, we found three names that could benefit long-term from this trend.
That said, let’s dive in and see why these are three baby boomer stocks to buy and hold.
Baby Boomer Stocks to Buy: Carnival (CCL)
Cruise ship giant Carnival (NYSE:CCL) is a pretty obvious choice when talking about “baby boomer stocks”. The cruise ship industry faces coronavirus-related headwinds short-term. But long-term, baby boomer-driven demand could benefit CCL stock.
And it doesn’t look like this catalyst has been priced into shares. As this Seeking Alpha contributor put it, CCL stock is a “quintessential above-average company at a below-average price.” With shares now yielding 5.6%, today’s troubles may be a great opportunity to dive into this baby boomer play.
Well-capitalized, CCL stock stands at greater shot of weathering the storm than competitor Royal Caribbean (NYSE:RCL). Not only that, Carnival shares trade at a lower valuation! While RCL stock trades for a forward price-to-earnings (P/E) multiple of 7.1, you can scoop up Carnival stock today at 6.9 times forward earnings.
With shares trending lower short-term, be careful entering a position. But consider CCL stock one of the best baby boomer stocks to buy and hold.
MGM Resorts International (MGM)
Casino gaming benefits from baby boomer spending. Baby boomers spend nearly $3000 per year at casinos, more than any other generation.
Moreover, Las Vegas is scrambling to attract millennials to its tables and slots. But, in the meantime, baby boomers remain a cash cow for casinos in Sin City and across the United States.
So, what’s a great stock to play this trend? How about MGM Resorts International (NYSE:MGM)? Trading for 21.4 times forward earnings, shares aren’t exactly cheap. However, compared to peers, MGM stock may be in better shape.
Competitors Las Vegas Sands (NYSE:LVS) and Wynn (NASDAQ:WYNN) have exposure to the U.S. gambling market, but most of their action is in Asian markets like Macau. So with the coronavirus from China impacting Macau tourism, now may not be the time to enter these names.
Granted, MGM stock does have interests in Macau gaming. But the Las Vegas strip remains their largest market. MGM’s regional casino business is no slouch, either. With properties in the New York, Washington D.C. and Detroit metro areas, MGM stock stands to benefit as baby boomers continue to be core casino customers.
Lincoln National (LNC)
Lincoln National (NYSE:LNC) stock is another baby boomer stock to consider. The company’s Lincoln Financial Group unit is a top issuer of annuities. With boomers in their golden years, annuities may become a larger part of their investment portfolios.
But with markets at record highs, why are annuity sales also at record highs? Personal finance experts will tell you annuities, even equity-index annuities, are a poor substitute for stocks. Yet, annuities offer some advantages for older investors.
A big issue with an all-equity portfolio during retirement is what’s called “sequence of returns risk“. In other words, a bear market coinciding with your retirement. Retirees have many investment options. But these alternatives, such as bonds, face market uncertainty as well.
In short, annuities could be a stronger option for boomer portfolios.
So, why is LNC stock the way to play this trend? Valuation. Lincoln National shares currently trade for 4.6 times forward earnings. That’s far below valuations of competitors like Principal Financial Group (NASDAQ:PFG), which sells for 7.4 times forward earnings. Or AIG (NYSE:AIG), which goes for 8.7 times forward earnings.
LNC stock also sells at a sharp discount to its book value. So with a low valuation, Lincoln National shares offer a “margin of safety“, which is tough to find in today’s richly-priced market. As an undervalued company with a boomer-driven catalyst (annuity sales growth), LNC shares are one of many great baby boomer stocks to buy and hold.
Thomas Niel, InvestorPlace contributor, has been writing single-stock analysis for web-based publications since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.