Millennials like to trade, and it has never been easier to do so. With a smartphone and an app, the first fully digital generation is trading on the way to school, during lunch and while waiting for a job interview to start. They get more investment advice from Facebook than investment advisors. No group of individual investors has had more influence on their peers’ investment choices.
Many millennials are turning to the market to make up for a gap in retirement savings. This cohort has lower savings and income levels than their parents, and more debt. Worst still, they will retire in a post-social security world if the social security trust fund runs dry around 2035 as predicted.
Fortunately, millennials are already shaping up to be more astute investors than their parents. They have more diversified portfolios than their parents – yet with a heavier weighting in stocks – and make better use of retirement accounts, according to a TD Ameritrade study on millennials investor insights. An impressive 82% of millennials have met the Wells Fargo criteria for a diversified portfolio: at least two equity funds, a fixed-income fund, and no more than 20% of assets in employer stock.
This conservative investment approach is also evident in their stock picking strategy. It echoes the value investing strategy of Warren Buffet, albeit with a stronger growth emphasis. These lower income earners view ‘smart investments’ as their main source of retirement savings.
What Stocks Do Millennials Love?
Two clear trends are evident in millennial investing. They love brands. They could have been raised at the knee of Warren Buffet: “Why not invest your assets in the companies you really like? Invest in what you use.” And they love ethical investing themes.
The most obvious theme in our top six millennial stocks is, buy what you use. They are: Apple, Google, Tesla, Facebook, Amazon and Alibaba. Among the favorite stocks of 15-to-35 year olds, only one company existed before they were born in 1980 – the year of Apple’s IPO.
- Stocks Millennials Love #1: Apple (AAPL)
Not even Facebook competes with this iPhone carrying generation’s love of Apple stock. This technology bellwether is the most invested in stock across all generations. If the stock’s present growth momentum continues, next year it will surpass $1 trillion in value. Over six months to October, Apple’s 12-month price-to-earnings ratio slipped from 17 to the 12-13 range. While it may indicate some investors are pulling back, it may be a good time for value investors to buy.
The highest valued company in the world reported its highest quarterly profit in its history in January, driven by iPhone sales. Apple joined the Dow Jones Industrial Average this year, giving it the true stature of a staid, reliable stock. To keep the growth momentum going, Apple’s most recent project is the driverless car. The millennials may be the first generation to let artificial intelligence do the driving.
- Stocks Millennials Love #2: Google (GOOG)
Google has restructured and rebranded itself Alphabet to concentrate on its core businesses, which include the Google search engine and Android. This is good news for investors. Importantly, Google’s financials will now be more transparent. Investors can see the revenue and expenses related to its different businesses and cool projects.
It also opens the door to Alphabet unlocking value in its technology projects. The cool technology at Google, which millennials find enticing, has been less lucrative. They include driverless cars, Google Glass, internet connectivity balloons, and smart contact lenses. Google is not writing off its cool factor but rather giving it more attention. The research projects will now have separate managers.
The regrouping of these businesses into separate units could also make them potential spinoffs as separate companies in the future. So look to Alphabet for all the technology you love – Wing, the drone delivery business, GoogleFi – its wireless project tied to the search engine business – and Google Loon – high altitude balloons that will deliver the internet to remote areas.
But there’s another meaning to Alphabet according to its CEO Larry Page: “We also like that it means alpha-bet (Alpha is investment return above benchmark), which we strive for!”
- Stocks Millennials Love #3: Tesla (TSLA)
Tesla is a favorite of the upwardly mobile millennials who can afford the 100K price tag of its electric cars, and those who envision being able to buy one in the future. Tesla also has the green factor. The zero emissions car appeals to this generation of ethical investors. Although the stock price is on a ride down a very bumpy road, the green generation is not going to turn its back on electric cars for gas guzzlers. Sales continue to grow for the car maker.
Profits are under pressure as the company invests in innovation but as more electric car fuelling infrastructure is rolled out, Tesla cars are becoming more popular. Tesla’s biggest bet is the green buying power of millennials. The youngest of this cohort may eschew gas guzzling cars altogether. The millennials continued support of Tesla shows that this generation understands its buying preferences better than the wider market.
- Stocks Millennials Love #4: Facebook (FB)
Facebook’s stock has increased almost four-fold over 2015. Among the social media platforms, Facebook has become the most influential, and not only for socializing. Facebook is the most important source of news and information for millennials, with 88% of millennials turning to Facebook for information, according to a study on the information habits of millennials by the AmericanPress Institute. Almost half of millennials share news over Facebook. Facebook has also become the most influential platform for sharing investment news and advice.
While many of us invest in Facebook because it is a wildly popular social app, millennials recognize the even higher value in this social app as a main information source of the digital age. Facebook’s add revenue is growing and recent buys such as Instagram are increasing its audience and advertisers.
- Stocks Millennials Love #5 & 6: Amazon (AMZN) and Alibaba (BABA)
These two ecommerce sites are the millennials’ Wal-Mart. They have successful, proven retail strategies and very strong brands. Amazon’s new Fresh food delivery service and drone delivery concept are providing the innovative services that keep millennials interested.
The risk of overvaluation is high for the millennials’ top stock selections. Alibaba is no exception. However, with a price-to-earnings ratio only slight above eBay’s, Alibaba seems fairly valued when considering a higher portion of its business comes from the high-growth Asian market. Orders, gross margins and earnings growth should be carefully monitored with high growth retailers. Watch customer acquisition – how much does it cost to keep the traffic moving through the site?
Older investors should pay more attention to the stocks millennials love. They best understand their preferences and where they will direct their future buying power.