If you’re a long-term investor and you’re looking for stocks to buy, a great place to find long-term winners is in the basket of companies that are winning over the hearts (and wallets) of Generation Z consumers.
Because Generation Z consumers are the future, and they are only getting richer.
These folks are young (born after 1995), have a long runway (at around age 25 today, the best of their “spending years” are ahead of them) and are coming into a lot of purchasing power as they grow up, get jobs and earn raises (Gen Z spending is expected to surpass Baby Boomer spending by 2025, with the gap obviously only widening thereafter).
The products and services that these increasingly important Generation Z consumers are spending a lot of money on today, then, presumably have a long runway for growth ahead of them so long as they maintain favorable positioning among this demographic.
Alas, the key question is: How do we know which products and services are winning among Gen Z consumers?
One source is Piper Jaffray’s Semi-Annual Taking Stock with Teens Survey, which gauges the consumption behaviors of ~10,000 U.S. teens via a survey twice a year, once in the spring and once in the fall.
The Fall 2020 edition of this survey was just released. After taking a deep dive with that survey, I’ve come to the conclusion that, right now, there are five really good Gen Z stocks to buy for long-term gains.
Those five stocks to buy are:
- Beyond Meat (NASDAQ:BYND)
- Farfetch (NYSE:FTCH)
- Snap (NYSE:SNAP)
- Turtle Beach (NASDAQ:HEAR)
- Roku (NASDAQ:ROKU)
Gen Z Stocks to Buy: Beyond Meat (BYND)
One of the best Gen Z stocks to buy for long-term gains is plant-based meat maker Beyond Meat, and that’s because Gen Z consumers are increasingly shifting toward plant-forward diets.
According to the Piper Jaffray survey, a record-high 18% of teens consume plant-based meat. For those who follow the plant food industry and know young consumers, this finding shouldn’t come as any surprise.
Meanwhile, a Utopia survey of 18-to 24-year-olds in Germany, revealed that more than half had given up eating meat. And a YouGov poll found that one out of five young people believe that the future of eating is meat-free.
The conclusion here is painfully obvious: Plant-based meat is the future.
And Beyond Meat is the face of the plant-based meat revolution, much like Tesla (NASDAQ:TSLA) is the face of the electric vehicle revolution.
Thus, just as TSLA stock soared in the 2010s as the electric vehicle revolution went mainstream, I believe BYND stock can similarly soar in the 2020s as the plant-based food revolution goes mainstream.
A less-obvious takeaway from Piper Jaffray’s Fall 2020 survey is that luxury fashion e-commerce platform Farfetch is also a great stock to buy for long-term gains.
This takeaway is rooted in combining two big findings from the survey.
One, Louis Vuitton finally unseated Michael Kors — a unit of Capri Holdings (NYSE:CPRI) — as the number one preferred handbag in the survey, representative of the reality that luxury fashion is becoming more and more ubiquitous among young consumers (Michael Kors bags cost a few hundred bucks, while Louis Vuitton bags cost a few thousand bucks).
Two, secondhand shopping is becoming increasingly popular among Gen Z consumers, accounting for 8% of shopping time allocation and stealing share from off-price, specialty and department stores.
Combining these two findings, it’s clear to me that young consumers increasingly want luxury fashion products but cannot afford them, and are therefore spending more time in luxury secondhand shopping channels.
That’s a dream combination for Farfetch. The company is essentially the Amazon (NASDAQ:AMZN) of luxury fashion, and while they do sell full-price new luxury fashion products through their platform, they also have a sizable pre-owned selection.
Given that young consumers prefer online shopping and will be attracted to Farfetch’s mobile-first shopping platform, I think Farfetch is positioned to win a lot of Gen Z spend over the next few years.
As the company does, revenues and profits will soar higher, powering equally big gains in FTCH stock.
One of the more obvious long-term stocks to buy because of its favorable standing among Gen Z is social media platform Snap.
Just as Facebook (NASDAQ:FB) reached digital ubiquity among high school and college students in the mid-to-late 2000s, Snap has reached digital ubiquity among high school and college students today. According to Piper Jaffray’s surveys, Snap has been the number one most preferred social media app among teens for several years — and it didn’t ceded that position in 2020, despite the rise of TikTok (which did, for what it’s worth, unseat Instagram as the number-two favorite social media app).
In other words, when it comes to Gen Z, Snap rules the social media space.
That’s a great position for Snap to be in because Generation Z is the most likely demographic to be influenced by a digital advertisement. Thus, brands will likely continue to accelerate their digital ad spending on Gen Z consumers for the foreseeable future — and if Snap has a chokehold on that audience, then most of those ad dollars will flow into the Snap platform.
The result, of course, is that Snap’s ad revenues should soar over the next few years, which will power even bigger gains in profits (thanks to the company’s highly scalable digital ad business model) and equally big gains in the SNAP stock price.
Turtle Beach (HEAR)
Gen Z consumers love video games. For several years now, video game spend as a percent of total teen spend has been on the up and up, hitting a record high 10% wallet share in the Fall 2020 survey.
Of course, the most obvious ways to play this rise in Gen Z video game spending is by buying one of the big video game publishers: Activision (NASDAQ:ATVI), Electronic Arts (NASDAQ:EA) or Take-Two Interactive Software (NASDAQ:TTWO).
But I think a more explosive way to play this video game megatrend is by buying stock in Turtle Beach, the company that makes gaming headsets.
One of the big reasons that Gen Z consumers are playing more video games is because gaming is going from a solo, isolated experience to a connected, digi-social experience where consumers across the globe are playing with and against one another. In this new era of digi-social gaming, communication is critical to the gaming experience. Communication is necessary only with a gaming headset, and Turtle Beach makes some of the most affordable gaming headsets in the market.
So, the Gen Z-driven video game market boom of the 2020s will meaningfully accelerate demand for Turtle Beach’s gaming headsets. This acceleration will enable HEAR stock to power significantly higher over the next few years.
Last, but certainly not least, on this list of long-term Gen Z stocks to buy is streaming platform Roku.
One of the clear takeaways from Piper Jaffray’s surveys is that teens are rapidly migrating from linear TV to streaming TV. Linear TV’s daily video consumption share has steadily dropped from 26% in the spring of 2016, to 9% in the fall of 2020, meaning that teens today watch more than 90% of their video through a streaming channel like Netflix (NASDAQ:NFLX), YouTube, Hulu or Disney+.
The best way to play this shift to streaming TV is by buying Roku stock, because Roku offers investors broad-based, channel-agnostic exposure to the streaming TV megatrend. That is, it doesn’t matter which streaming service booms over the next several years, because Roku offers equal access to all streaming services. Thus, so long as the streaming TV migration continues (it will), then Roku will win — regardless of which service emerges on top of the Streaming Wars.
Plus, Roku offers an affordable access point to streaming services (the streaming sticks are around $50), and affordability is always top-of-mind for consumers.
To that end, Roku is optimally positioned to turn in the cable box of what will soon be a huge streaming TV ecosystem that has captured all Gen Z eyeballs — and which, therefore, will inevitably capture all TV ad spend. Most ad spend today is still in the linear channel. As it migrates to the streaming channel over the next few years, Roku’s revenues and profits will power way higher. So will ROKU stock.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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