Gen Z's favorites are a good investment.
The youngest generation of American consumers has traditionally been the trendsetter in the market. Investors looking for the next big investment opportunity would be wise to keep an eye on what brands U.S. teenagers are buying. Like any other generation, Generation Z, which represents people born since the mid-1990s or early 2000s, has its own unique consumer behavior centered on connectivity. Piper Jaffray recently surveyed 9,500 Gen Z consumers to see what brands they are buying, what food they are eating and how they are spending their time online. Here are eight of the best stocks to buy to go all-in on today's hottest teen brands.
Starbucks Corp. (ticker: SBUX)
By far the largest share of the reported teen budget -- 23% -- went to food. Privately owned Chick-fil-A was once again the most preferred restaurant brand among teens, but Starbucks was a close second with 11% market share among upper-income teens and 10% share among average-income teens. Piper Jaffray says Starbucks' share of the teen market is well below peak levels of 18% back in 2013. However, analyst Nicole Miller Regan says recent checks suggest the company grew its same-store sales in the mid single-digits in the fiscal fourth quarter.
Chipotle Mexican Grill (CMG)
It's been a wild ride for Chipotle investors in the past few years, but a new management team finally seems to have the stock on track. Not only is Chipotle the top Gen Z choice in the Hispanic foods category, it ranks third overall behind Chick-fil-A and Starbucks among upper-income teens at 6% share. Chipotle also ranked among the top six restaurant brands for average-income teens with 3% mindshare, a marketing measurement of the consumer awareness or popularity of a product. With the stock already up 92% year-to-date, Miller Regan says checks suggest Chipotle's same-store sales growth is trending in the high single-digits in the fiscal third quarter.
For the past nine years, Nike has been in its own league when it comes to preferred teen apparel brands. Nike's 23% mindshare of top apparel brands is up from 22% a year ago and is more than double any other brand. Among footwear brands, Nike holds 42% mindshare, once again more than doubling its nearest competition. Nike/Jordans remain the top teen fashion trend as well, according to analyst Erinn Murphy. While Nike's position as the top teen apparel brand is nothing new, Murphy said its mindshare gains are an encouraging sign.
Lululemon Athletica (LULU)
Lululemon was the top mindshare gainer among apparel brands, moving from 11th place a year ago to seventh place in this year's fall survey. The brand's current standing represents a new peak, and Murphy says its No. 6 ranking among teenaged girls is even better. Among upper-income Gen Z females, Lululemon was the No. 2 apparel brand with 9% mindshare, trailing only American Eagle Outfitters (AEO). Lululemon is also second only to Nike as the most preferred athletic apparel brand among all upper-income teens. Lululemon's Gen Z popularity may be a driver of its 68% year-to-date market gains.
Not surprisingly, Amazon is one of the most popular brands among Gen Z shoppers. Amazon's online shopping mindshare is massive and growing, up from 50% in the spring to 52% in the fall. Incredibly, Amazon's online shopping mindshare among teens is 13 times higher than its nearest competition (Nike). Analyst Michael Olson says there doesn't seem to be anything stopping Amazon from continuing to gain market share of overall U.S. retail sales, especially as the consumer demographic shifts toward Gen Z. Olson says investors should also appreciate Amazon's opportunities in cloud services and advertising.
Cord-cutting has been a dominant trend in the media space for years, but the connectivity of Gen Z makes American teens less attached to traditional cable TV than any other generation. Olson says Netflix and Alphabet (GOOG, GOOGL) subsidiary YouTube are unparalleled when it comes to Gen Z time spent watching online video. Netflix represents 35% of average teen daily video consumption, YouTube represents 37% and traditional TV represents 12%. As an investment, Olson says Netflix should be able to fend of competition from Walt Disney Co. (DIS), Apple (AAPL) and others.
Activision Blizzard (ATVI)
Olson says the transition of video game format from physical to digital distribution is a positive for video game publisher margins. More than 60% of Gen Z gamers say they now download at least half of the games they play. "Fortnite" has been a blockbuster hit for private publisher Epic Games, but Olson says its popularity is finally fading. Just 37% of teens surveyed say they are currently playing "Fortnite," down from 53% just six months ago. Olson says Activision Blizzard franchise "Call of Duty" is helping fill the "Fortnite" vacuum with 35% teen mindshare.
Kellogg Co. (K)
Kellogg isn't exactly the type of cutting-edge, technology-centric company typically associated with Gen Z. However, the Piper Jaffray survey revealed Gen Z consumers love Kellogg brand snacks. Kellogg's Cheez-It was the third-most preferred teen snack, even beating out PepsiCo (PEP) brand Doritos. Kellogg's Pringles also landed a top 10 spot at No. 9. Analyst Michael Lavery said Kellogg brands such as Pop-Tarts, Nutri Grain and Rice Krispies also performed well among Gen Z consumers. In fact, Kellogg brands were second only to PepsiCo brands in total mentions in the most preferred snacks category.
Top stocks loved by Generation Z:
-- Starbucks Corp. (SBUX)
-- Chipotle Mexican Grill (CMG)
-- Nike (NKE)
-- Lululemon Athletica (LULU)
-- Amazon.com (AMZN)
-- Netflix (NFLX)
-- Activision Blizzard (ATVI)
-- Kellogg Co. (K)
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