By Jim Reeves, Markets
Thereâ€™s a lot to be said for watching demographic shifts as you craft your long-term investing strategy.
And while Baby Boomer stocks like health care and insurance get a lot of attention, long-term investors should also consider the impact Millennials will have on businesses â€” and their portfolios.
There are about 80 million Americans who were born between 1980 and 1995. And while much has been made about the challenges for Millennials to get good jobs or contribute to the economy, that is sure to change. As the Boomer population starts its inevitable decline, the power of this age group will grow substantially in the years ahead.
Some of that will be good, as the tech talents of younger Americans are put to work in the economy and as they grow into a powerful consumer class.
But for some stocks, the rise of Millennials is assuredly bad news.
Which picks? Well, here are five specific businesses that Millennials are shunning, which could cause a lot of pain for investors over the long-term if current trends continue.
Cruising around in my rusty Chevrolet Cavalier with the sunroof open and the radio up was the very definition of freedom to me at 18.
But these days, thereâ€™s simply not the interest in cars like there used to be.
Consider that in 2010, a mere 28% of 16-year-olds had driverâ€™s licenses, compared with 44% in 1980, according to another study from the University of Michigan Transportation Research Institute.
Car sales in America have rebounded in recent years thanks, in part, to pent-up demand after the Great Recession, but the sad reality is that the U.S. love affair with the automobile may be coming to an end. Thatâ€™s in large part due to a lack of interest among Millennials who look to live in walkable, urban locations and prefer car-sharing services like ZipCar or ride sharing services like Uber.
A car is just an expensive hassle for the younger generation, as technology equals freedom in 2014.
Sure, U.S. car sales could top 16 million in 2014 to mark the highest level of vehicle sales since 2007. But General Motors and Ford are up only about 6% in the past 12 months vs. 18% gains for the broader stock market. So clearly there are concerns about how sustainable this success is.
And as the reluctant drivers in the Millennial generation become a larger share of the car-buying public, the pressure could persist for some time â€” and after big rebounds since the bailouts of the Great Recession, too much optimism may be baked in to automakers.
Itâ€™s unclear where streaming video is headed in the next several years. But itâ€™s clear that the future is likely with Netflix or Google property YouTube and not an old-guard cable company.
Consider that for the first time ever, the number of pay-TV lines in the U.S. fell last year â€” with a drop of about 250,000 subscriptions over the calendar year. Thatâ€™s a big number, and a number that seems to be growing at an alarming rate.
Alarming, at least, if youâ€™re a company like Comcast or Time Warner Cable Part of the problem is “cord cuttingâ€ as folks with cable TV find options on Netflix or other streaming providers at a fair price. But increasingly, traditional cable-TV businesses are going to face the big pressure of Millennials and so-called ” cord nevers â€ who havenâ€™t ever had an affinity to cable and see no reason to start anytime soon when so much of their entertainment is consumed via laptop, tablet or smartphone.
Clearly the industry is circling the wagons, with Comcast bidding for Time Warner Cable Similarly, AT&T is looking to snap up DirecTV â€” not just to bolster its U-Verse pay-TV business but also to help the company transition into a new content delivery company in the Internet age.
There are big pressures ahead for those that canâ€™t evolve with the times. So while investors may like the dividends of some previously reliable telecoms, itâ€™s important not to forget the long-term headwinds for anything related to cable TV.
In the short term, I think retail is in big trouble. But folks blaming bad first-quarter weather are missing the broader long-term pressure of e-commerce that is reshaping the entire sector as more shoppers go online instead of to the mall.
Broadly, online sales continue to outpace brick-and mortar results. Online retail sales grew about 17% in 2013 , with total overall retail sales up only a fraction of that. So itâ€™s no surprise that some of the biggest laggards in retail are stores that simply canâ€™t get their online acts together.
Take specialty-clothing retailer The Buckle. This small-cap retailer used to be a growth darling, but now has fallen on very hard times as trendy shoppers look for alternatives on the web.
Part of the reason the stock has been soft is a flight from malls, with same-store sales declining 0.9%, but the other element is a lack of online presence to replace that lost revenue.
Consider The Buckle online sales totaled a meager $21.4 million last quarter â€” barely 2% of total sales.
Brick-and-mortar retailers that canâ€™t change with the times and evolve to a digital-sales platform are going to continue to feel the pain as more retail sales go online in the years to come.
By now, youâ€™ve certainly seen all the stories about why Millennials are a drag on the housing recovery.
The reasons are numerous, but the biggest one-two punch tends to focus on the personal desire to live urbanely and the financial practicalities of less income and a lot of student-loan debt.
Consider that about half of home-buying Millennials lately are asking mom and dad to shoulder their down payments, according to a recent Trulia survey.
Others are so spooked by the Great Recession and mountains of student-loan debt that they have no desire to take on a mortgage at all considering other financial concerns.
Homebuilders like PulteGroup and Toll Brothers have been under pressure for the last year or so as the rebound in housing has petered out and construction has tapered off. But just imagine what would happen if interest rates tighten and the cost of borrowing climbs even higher!
Millennials donâ€™t want to live in surburbia, and either canâ€™t or wonâ€™t take on a mortgage payment. And that trend is not going away.
Sugary, carbonated beverages like Coca-Cola and Pepsi seem like the staple junk food of any young American. But not anymore, thanks to a focus on fighting childhood obesity and a rise of healthier alternatives.
As a result, Millennials drink much less soda. And that number is declining every year.
A recent Morgan Stanley report illustrates how the shift to energy drinks and sports drinks in the past decade is partially to blame. But while thatâ€™s good news for Americaâ€™s health, itâ€™s very bad news for investors who have always considered Coca-Cola the gold standard of consumer staples.
Sure, Coca-Cola has tried to hedge its bets with lines like its Odwalla juices and Powerade sports-drink lines. But the flagship soda brands of Coke and Sprite are facing real headwinds in the years ahead.
Perhaps companies like Coca-Cola and Pepsi can continue to diversify and evolve, but investors need to know what they are getting into with these consumer-staples companies that are increasingly less popular with younger Americans.