By Matt McCallApr 11, 2017
Investing has always been my passion. The way Wall Street does it has not.
Nearly 20 years ago, I took my first job as a stock broker, excited as can be to help my clients make money by doing what I absolutely love to do – uncover great stocks. It didn’t take long for that excitement to turn to discouragement.
First of all, I realized that most brokerage firms recommended the same stocks, most mutual funds held the same stocks, and most investors owned the same stocks. I was face to face with the proverbial herd mentality, and boy was it ever true. I learned that Wall Street is just too lazy to find the best stocks, preferring to stick with what they know and do what they’ve always done. Their concern is making commissions and getting new clients, which means they are salespeople, not stock experts. I saw up close how investors paid very high fees for “expert” advice, but nearly every investor ended up owning the same 10 stocks!
I took my passion to radio and TV for a while, and when I started my TV career I was privileged to see into Wall Street even deeper. I shared the camera with some of the most well-known investors of the last century. I learned a lot from many of them, but it was still amazing to me that some of the old Wall Street guys would make hundreds of millions of dollars per year – yes, you read that right – and their best stock idea was one of the largest companies in the world that almost everybody owned anyway.
I knew there was a better way, that there was big money to be made outside of those same stocks that everyone had in their portfolios. The next great companies that could make a difference in people’s lives were out there, trading among the thousands of stocks that Wall Street ignored.
Those were the stocks I started to cover, and the ones I wanted my clients in when I started my own financial firm. I’ve been doing it for the last 13 years now, and I see more than ever how this new way of looking at Wall Street is better than the old way. Finding those next great companies also meant going about things differently, so I developed a multifaceted approach that big old Wall Street was too lazy to try – the next generation of investing.
Next-gen investing goes beyond the myopic focus of Wall Street. The big firms settle on one way of researching stocks, and that’s all they do. I equate my approach to a three-legged stool that incorporates fundamentals, charts and technical analysis, and things like intangibles, catalysts and themes that won’t show up in the stock screens used by 99% of Wall Street. I’ve found that this new way of investing increases our winning percentage, keeps our losses infrequent and very manageable, and enhances our ability to find the next big winners.
I’ll have more in future reports, but today I want to show you exactly what I’m talking about. The way I want to illustrate this point is through a next-gen theme, an unstoppable trend that will create more opportunities than Wall Street can even imagine right now because they aren’t looking. Wall Street most often takes what’s called a bottom-up approach, meaning they just look at a stock. As you can imagine, too often they miss the forest that’s right in front of them because they’re just looking at one tree.
One of the quickest ways to watch your portfolio stagnate is by not keeping up with the larger stories that are fueling the market’s next moves. I like to call these mega trends, and right now we’re watching some of the most exciting trends in decades play out. Everything from next-gen technology to new sources of energy and even a changing global landscape are creating explosive opportunities that many are missing out on.
One of my favorite mega trends that investors simply can’t afford to ignore is the millennials. We are witnessing the beginning of the greatest wealth transfer in U.S. history from the once-dominant Baby Boomers to their children, the rising millennial generation (generally born between 1980 and 2000). And investors who are shrewd enough to realize the immense potential this demographic shift holds are in an outstanding position to benefit early.
I love talking about this trend because whether you are a retiring Boomer or a millennial yourself looking to build a portfolio, there are so many exciting ways to profit. There are three million more millennials than their post-war parents, with the oldest just hitting their mid-30s and the youngest still in college. They’re getting ready to take the economic spotlight as they flood the workforce, start families and enter their prime earning years.
According to a report conducted by Accenture, millennials spend roughly $600 billion each year and by 2020 that number will grow to $1.4 trillion annually in the United States alone. This would represent 30% of total retail sales. Wall Street may not be looking there quite yet, but I’m not waiting and you shouldn’t either!
So the question becomes – what are the best ways to play this impending economic boom? And if you’re part of it, how can you profit from the trends you already see growing around you every day?
That’s what I’m here to answer. We’ve identified the megatrend, so now let’s dig down into the top four secondary trends that are leading the millennial charge, and I’ll share my favorite investment picks that capitalize on each.
Millennials have grown up in a wired world, and their biggest online presence comes from social media. Heavy hitters like Instagram, Snapchat (SNAP) and Twitter (TWTR) attract around 20 million millennial users every day! It’s used in a variety of ways, but the common denominator is staying connected to what others are talking about. In fact, social media has changed the way our society communicates and gets their news … even the recent presidential election was significantly impacted by 140-character tweets.
One of the most obvious plays here is Facebook (FB). You could make the case that this is the kind of pick old Wall Street would make, but don’t discount it just because it’s been around awhile (or because your parents use it). While Facebook may be a pioneer of social media, it isn’t resting on its laurels nor is it rolling over to other rising social media apps. In February, the company launched new employment posting and application tools that connect businesses and job seekers directly on the social network, creating some competition for LinkedIn (LNKD) and Glassdoor. It is also coming out with a television service that lets you play videos through smart TVs, and has ventured into the virtual reality craze through its ownership of Instagram. These growth prospects bode well for the stock, which is already having a strong 2017 on the heels of a solid fourth-quarter earnings report.
One of the hallmarks of next-gen investing is a multifaceted approach to making money, and FB is a good example of that because it is also a component of my next pick, one of my favorite ETFs right now – the Global X Social Media ETF (SOCL). ETFs are a great way to play market trends, since they give you exposure to multiple companies that are driving the action but don’t carry the same risk that can come from holding a single name. In SOCL’s case, social media’s biggest names serve as its top 10 holdings, including FB, TWTR and China-based Tencent (TCEHY). Not only does this give you diversification, but some global exposure to this wide-ranging trend. Tencent, for example, is not traded on the U.S. exchanges, so the ETF gives you safe and inexpensive access you otherwise would not have.
(If you really want to get slick, you can buy an ETF and then invest in the strongest stock or two within that ETF as profit boosters. We’ll talk more about that in a future report.)
Staying with the communication theme, around 86% of millennials own a smartphone and use it to bring the lifestyle they want right to their door. As a result, the service industry is ready to take off, opening up other areas we can profit from. Take food, for example. It’s as old as the human race itself, but now we have a next-generation way to make money. Millennials will eat out 177 times in a year, compared to 146 times for other demographics, but that doesn’t always mean it will be in a restaurant. GrubHub (GRUB) provides an online and mobile platform for pick-up and delivery orders, connecting diners to over 40,000 local restaurants in 1,000 cities. The ease of ordering online or through an app, as well as taking advantage of deals on otherwise pricier hot spots, makes this company a millennial favorite as well as a personal favorite – I live off GrubHub whenever I stay in New York!
Even fitness has a mobile component for millennials. MINDBODY (MB) operates a cloud-based software and payments platform for the wellness industry. Gone are the days of sticking with one gym membership. Millennials like options, and MB gives it to them. Simply download the app to find and book fitness classes nearby, rate and review different studios, find deals on new exercise crazes, manage your workout schedule and track progress. It’s also great for finding fitness options while traveling – I’ve even used it myself on the road! This young company is an intriguing investment option as it should be profitable next year and earn up to $0.62 a share by 2019.
Millennials, let me ask you a question. When was the last time you stopped at an ATM to grab some cash to pay a friend back for lunch? Or wrote a check to cover your half of a vacation rental? Chances are good you’re shaking your head at me right now. PayPal (PYPL) has stepped in to make online payments the preferred method of person-to-person transactions, and its ownership of payment system Venmo is poised to be a big win for the company.
To gain access to the mobile network, millennials must choose a wireless carrier to provide the high levels of data needed. T-Mobile (TMUS) is a leader in offering unlimited data and has been a top choice of millennials for years. It has extra appeal right now as a takeover target since larger players are looking to gain access to the growing population.
Another area of the economy that this sweeping demographic will have a major impact on is the housing market. Millennials will make up 33% of homebuyers in 2017, equating to about 1.9 million homes, and it won’t stop there. The oldest of this age group are settling down and starting families, and will account for about 80% of all births this year. This creates a perfect storm of demand not just for homes, but bigger homes as their household needs increase.
Therefore, this facet of the millennial trend includes real estate as well as homebuilders and materials companies. That puts the iShares Dow Jones US Home Construction ETF (ITB) and PowerShares Dynamic Building & Construction ETF (PKB) on my short list. They consist primarily of homebuilders but also building products and even home improvement stores. The influx of millennials buying homes coupled with low interest rates and the affordability index near lows will help the sector and these broad ETFs are a good way to capture all the residual effects.
And once those homes are built, millennials will be itching to decorate in their signature fashion – online. That makes Wayfair (W) an attractive investment option. Through its own website as well as through online retail partners, Wayfair offers nearly seven million products for the home from over 7,000 suppliers. The company prides itself on its online shopping convenience and affordable prices. This combination has led to strong growth over the years, and management is aiming to hit $1 billion in sales in its fourth-quarter earnings report.
One of the most interesting aspects of millennials is that even with the world at their smartphone fingertips, they would rather put their hard-earned money into experiences over material things. Millennials spend an average of $1,200 on travel each year, and that number is only expected to grow.
It’s no surprise that my first pick has an online presence. Expedia (EXPE) has been around a while and has become a dominant force in the travel industry; chances are good that you’ve used expedia.com to book a trip at some point. The company also operates the hotel booking site Trivago and property rental site HomeAway (a competitor of Airbnb), letting users quickly make travel plans on the go.
How they get to those locations is another component to this trend. The airline industry hasn’t always gotten the best rap, but it is seeing improvements in cash flow as well as customer satisfaction through timeliness and baggage handling. Even Warren Buffett, who had been famously averse to airline stocks, has started investing in some of the sector’s biggest names. Many of those make up the U.S. Global Jets ETF (JETS), including Southwest Airlines (LUV), United Continental Holdings (UAL), Delta Air Lines (DAL) and American Airlines Group (AAL). That top-tier exposure makes this an attractive way to play a recovering industry that’s sure to benefit from increased millennial spending.
Let me wrap up this report with one final pick, one that encompasses all the niche themes related to the millennial boom that we talked about today. The Global X Millennials Thematic ETF (MILN) is designed to benefit from the rising spending power and lifestyle preferences of this generation. It’s made up of companies that encompass everything from social media and entertainment, to education and employment, to travel and mobility. Its top holdings include the heavy hitters you’d expect – Apple (AAPL), eBay (EBAY), Facebook (FB), Netflix (NFLX), and Priceline (PCLN) to name a few – and is a good way to give your portfolio some millennial flavor.
I hope you’ve enjoyed this exclusive look at one of the most exciting mega trends in the market right now and some of the best corresponding stocks. In these days of shorter holding periods, timing is important when you buy and sell, and that’s where chart and technical analysis are such a huge help. Some stocks or ETFs you might own for a year or more, whereas others you may own several times within that year – something else Wall Street can’t help you with, but is crucial to next-gen investing.
I have no doubt we’ll be talking more about millennial opportunities as this demographic continues to permeate the market, so stay tuned for much more on my latest investment picks and how we can profit from the next-generation companies that are ready to change Wall Street.
Thanks for reading!
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