Technologically savvy, independent, entrepreneurial, diverse, but connected, socially responsible, and financially focused … Welcome the first genuinely digital-native generation: Generation Z (Gen Z). Although different researchers may assign slightly different ranges, Gen Z is typically accepted as the cohort born between 1997 and 2012. Today, we introduce seven retirement stocks for Gen Z to buy and hold.
Gen Z is the first generation that does not know a world without the internet and, as such, differs dramatically from the previous two generations, Generation X (Gen X) and millennials (Gen Y). Recent metrics show Gen Z makes up close to a quarter of the U.S. population. Furthermore, their spending power is about $150 billion in the U.S.
These young people are getting ready to enter the world stage as they continue with their studies and prepare themselves for their working years. The way they conduct their personal and professional lives, shop and save will become a dominant factor for our economy. Research by McKinsey reveals, “Companies should be attuned to three implications for this generation: consumption as access rather than possession, consumption as an expression of individual identity, and consumption as a matter of ethical concern.”
Understandably, the pandemic has affected the spending patterns of Gen Z. Now, “Gen Z is going all-in on tech.” On the other hand, “When it comes to shopping in-store, comfort levels are down, and anxiety is up … 62% of Gen Z shoppers shared that it may take them a while before they feel comfortable shopping in a mall again.”
According to researcher Jason Dorsey, surveys by the Center for Generational Kinetics (CGK) show, “the impact of watching their parents struggle during the Great Recession shaped Gen Z to save money, think about and plan for retirement, seek companies that offer benefits as part of employment, create emergency accounts at a young age, and make budget-conscious decisions.”
With that information, here are seven retirement stocks that Gen Z investors could consider investing in for the long term:
- Electronic Arts (NASDAQ:EA)
- Expedia (NASDAQ:EXPE)
- Hain Celestial (NASDAQ:HAIN)
- Invesco NASDAQ Next Gen 100 ETF (NASDAQ:QQQJ)
- NextEra Energy (NYSE:NEE)
- Schwab U.S. Large-Cap Growth ETF (NYSEARCA:SCHG)
- Vanguard Information Technology Index Fund ETF Shares (NYSEARCA:VGT)
Retirement Stocks: Electronic Arts (EA)
52-week range: $85.69 – $150.30
1-year price change: 29%
Dividend yield: 0.48%
My first pick for this list of retirement stocks is EA. Redwood City, California-based gaming group Electronic Arts is a leading name in digital interactive entertainment. Impressively, the company has a portfolio of well-known titles such as EA Sports FIFA, Battlefield, Apex Legends, The Sims, Madden NFL, Need for Speed and Titanfall.
On Feb.2, EA announced Q3 FY21 results. Net revenue was $1.67 billion, up from $1.59 last year. But net income of $211 million was down from $346 a year ago. Diluted earnings per share (EPS) also decreased from $1.18 to 72 cents. Furthermore, operating cash flow was $1.12 billion. Analysts noted the increased levels of player engagement and the growth in the mobile business.
CEO Andrew Wilson commented, “With our expansion plans for EA SPORTS, strong catalogue of owned IP, leading live services, and ability to span every platform, we are growing to reach an even larger audience.” COO and CFO Blake Jorgensen added, “Looking further ahead, even with the upside this year, we anticipate delivering growth in fiscal 2022, driven by the next Battlefield.”
The group’s FY21 ends on Mar. 31, 2021. For the fiscal year, management expects net revenue to come at $5.6 billion. Projected net income of $742 million is expected to translate into diluted EPS of $2.54.
EA stock’s current forward price-to earnings (P/E) and price-to-sales (P/S) ratios are 24.10 and 7.52, respectively. It has recently announced it will acquire Glu Mobile (NASDAQ:GLUU), a move that is likely to provide further tailwinds to its mobile focus. Electronic Arts could be a great pick when it comes to retirement stocks.
Expedia Group (EXPE)
52-week range: $40.76 – $166.57
1-year price change: 36.5%
Seattle, Washington-based online travel platform Expedia was initially one of the most affected travel stocks in the early weeks of the pandemic. While the demand for air tickets, car rentals, cruises, hotel bookings and lodging collapsed, so did the EXPE share price. However, in February, as the markets focused on a potential rebound in travel services, the stock hit a record high.
Q4 financial results released on Feb. 11 showed revenue of $920 million, a decline of 67% year-over-year. Plus, adjusted net loss for the quarter was $376 million, translating into adjusted EPS of $2.64.
CEO Peter Kern cited, “Q4 did not show any real sequential progress other than some signs of modest improvement around the holidays that carried into the early part of 2021. While the environment continues to be unpredictable, we remain keenly focused on reshaping and simplifying our business.”
EXPE stock’s P/S and price-to-book (P/B) ratios are 4.32 and 15.14, respectively. Given the continuing uncertainties due to Covid-19, Expedia might still come under pressure in the coming weeks. However, high hopes of the vaccine’s positive results also mean that further declines are likely to be short-lived.
With its well-known brands, such as Hotels.com, Trivago, Orbitz, Travelocity, CheapTickets, CarRentals.com, Expedia Cruises and VacationRentals.com, Expedia is likely to reach new highs in the coming quarters, too.
Hain Celestial Group (HAIN)
52-week range: $18.12 – $45.42
1-year price change: 58%
Lake Success, New York-based Hain is an organic and natural products company. Operations extend beyond North America to Europe, Asia and the Middle East. Its brands include Celestial Seasonings, Terra, Ella’s Kitchen, The Greek Gods and Yves Veggie Cuisine.
According to the second-quarter results released on Feb. 9, net sales were $528.4 million, an increase of 4% YoY. Furthermore, adjusted net income was $34.7 million, up 97% YoY. Adjusted EPS of 34 cents doubled from the same quarter the prior year. Operating free cash flow was $46.3 million, compared to $4.6 million in Q2 2020. Additionally, analysts were pleased to see improvements in margins and free cash flow.
CEO Mark L. Schiller commented, “Although the macro operating environment remains challenging, our team continues to execute well against our transformational agenda. As a result, I am confident we will continue to see solid margin expansion and profit growth as we progress through the second half of fiscal year 2021.”
HAIN stock’s forward P/E and P/S ratios are 32.79 and 2.12, respectively. Given the broad product portfolio and transformation efforts for growth, Hain stock could be regarded as a solid long-term investment. Yet, with the recent increase in price, some investors are likely to ring the cash register soon.
A potential decline toward $40 or below would improve the margin of safety in the shares of the tea and organic food specialist, making this a great pick for investors looking at retirement stocks.
Invesco NASDAQ Next Gen 100 ETF (QQQJ)
52-week range: $24.67 – $35.18
1-year price change (since Oct. 2020): 25%
Dividend yield: 0.34%
Expense ratio: 0.15%, or $15 annually on a $10,000 investment
Our next discussion centers around an exchange-traded fund (ETF). The Invesco NASDAQ Next Gen 100 ETF gives access to the 101st to the 200th largest non-financial firms listed on the Nasdaq stock exchange.
Most InvestorPlace readers are probably familiar with the NASDAQ 100 index, which is made up of the 100 largest U.S. and non-U.S.-based non-financial companies listed on the Nasdaq. The NASDAQ 100 is also referred to as the triple Qs.
QQQJ started trading in October 2020 and assets under management are about $1.1 billion. The fund follows the NASDAQ Next Generation 100 index, which focuses on firms that could possibly move up to the NASDAQ 100.
Shares of information technology (IT) companies have the highest weighting (42.89%), followed by health care (19.02%), communication services (15.58%), consumer discretionary (13.85%), and others. The top 10 holdings comprise about 19% of net assets. The top three names in the fund are:
- Roku (NASDAQ:ROKU): the streaming entertainment content platform is up over 246% in the past year
- Crowdstrike (NASDAQ:CRWD): the cybersecurity technology group is up over 252% in the past year
- Trade Desk (NASDAQ:TTD): the digital-advertising platform is up over 158% in the past year
The fund deserves to be on investors’ lists of retirement stocks. A large number of the companies in the fund are likely to become household names in the coming quarters.
NextEra Energy (NEE)
52-week range: $43.70 – $87.69
1-year price change: 5.89%
Dividend yield: 2.06%
My next pick for retirement stocks for Gen Z is NextEra Energy. Juno Beach, Florida-based NEE is a clean energy company that owns Florida Power & Light Company, serving more than 5.6 million customer accounts. The group also operates NextEra Energy Resources, one of the largest generators of renewable energy companies worldwide. It is a leader in battery storage, too.
Fourth-quarter financial results were released on Jan. 26. Adjusted income was $785 million, an increase of 11% YoY. Adjusted EPS was 40 cents per share, up 11% YoY. Additionally, cash and equivalents were $96 million, compared to $64 million a year ago.
CEO Jim Robo cited, “Based on the strength and resiliency of our underlying businesses, I will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings per share expectation ranges in 2021, 2022, and 2023, while at the same time maintaining our strong credit ratings.”
NEE stock’s forward P/E and P/S ratios are 29.85 and 8.22, respectively. Although the shares are not cheap by historical valuation levels, the optimistic outlook for green energy companies continues. Buy-and-hold investors could consider a decline toward $75 or even below as a better entry point. Most analysts concur NextEra has plenty of power to keep growing.
Schwab U.S. Large-Cap Growth ETF (SCHG)
52-week range: $67.25 – $137.20
1-year price change: 30.9%
Dividend yield: 0.52%
Expense ratio: 0.04%
Our next choice is another fund, namely the Schwab U.S. Large-Cap Growth ETF. SCHG, which started trading in November 2009, provides exposure to U.S.-based large capitalization (cap) growth stocks. The definition of large caps may differ slightly across brokerages. A firm with a market cap of more than $10 billion is usually considered a large-cap company. At present, over 75% of the companies in the ETF have markets caps above $70 billion.
SCHG, which has 232 holdings, tracks the returns of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. Assets under management stand close to $14 billion. As far as the sectors are concerned, IT has the highest weighting (45.38%), followed by consumer discretionary (16.65%), communication services (14.93%), healthcare (12.31%) and industrials (3.54%).
The top 10 holdings comprise over 50% of the fund. Heavyweights include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA).
Growth names have consistently outperformed value stocks in the past decade. Therefore, those investors who believe record-low interest rates and technological tailwinds will provide further momentum to such growth names could consider buying the dips in the ETF.
Vanguard Information Technology Index Fund ETF Shares (VGT)
52-week range: $179.45 – $382.73
1-year price change: 37.75%
Dividend yield: 0.83%
Expense ratio: 0.1%
The Vanguard Information Technology ETF gives access to businesses that mainly operate in IT. The fund started trading in January 2004, and net assets stand close to $47 billion.
VGT, which has 345 holdings, tracks the MSCI US IMI Info Technology 25/50 index. Close to 60% of the funds are in the top ten stocks. Apple, Microsoft, Nvidia (NASDAQ:NVDA), Visa (NYSE:V) and Mastercard (NYSE:MA) top the names in the roster. These firms have been among technology and growth leaders in the past decade.
Looking at sector allocations, technology hardware, storage and peripheral leading with 23.2%, followed by systems software (20.1%), semiconductors (15.9%), application software (13.3%) and data processing and outsourced services (12.9%).
In a future shaped by Gen Z demands, the uptrend in shares of tech companies are likely to continue. Despite occasional profit-taking, the fund should continue to do well in the coming quarters, too.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.