The Market’s Biggest Force Nobody Seems To Be Talking About

I’ve been doing a lot of reading these days about my own generation: the millennials.

While I’m at the older end of the cohort, and don’t necessarily identify as one, even I will admit that we’re a tough bunch to figure out.

You’ve heard the stereotypes — and many of them are true. We’re notoriously fickle, embrace irony at every opportunity, and were colored markedly by technology (as well as the financial crisis).

But here’s what you might not know… the millennial population is now 75.4 million, according to the Pew Research Center. That group (born roughly between 1980 and 2000, depending on the source) now outnumber the 74.9 million baby boomers (late 1940s to 1964). Given this data — especially the fact that older millennials (like myself) are in their early 30s (prime years of consumption) — companies have been trying to wrap their heads around just what it is that makes us tick. There’s big money in that, after all…

From my perspective, here’s how the media tends to portray millennials (maybe you’ve found yourself thinking this, too):

— Very tech-savvy.

— Hate being labeled.

— Easily bored, distracted, crave instant gratification, and constantly on the move.

— Waiting longer to get married, have kids, buy houses…

Without getting deep into the social science, here’s my take on some of these assumptions…

Yes, millennials are tech savvy, and they may not know as much about history as their parents — but they are incredibly nostalgic. Yes, it may come off a little nauseating at times, but for example, did you also know that vinyl record sales are at a 25-year high? Even cassette tapes are making a comeback. Millennials have a love for all things “vintage” and “retro” — even if they’re really not. 

Yes, millennials say they hate labels, but don’t let that fool you. For example, while close to 50% of millennials say they’re politically independent, that doesn’t mean they’re not political. Pew’s surveys indicate that 54% of millennials lean to the left, compared with only 33% to the right. They’re also not identifying much religiously, either, but they’re not completely closed to the idea. The normal answer you’ll get from a millennial is “I’m spiritual, but not religious.” 

Bored? Distracted? Chalk this one up to the world this generation grew up in. Think about it. From childhood on, it’s been a constant influx of inputs, stimulation, information, etc. — at a faster pace than ever before. Older millennials may come to appreciate the value of “unplugging” once in a while, but this is a brave new world we’re in.

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Adapting To A Changing Market
My point is this: Millennials will soon be the most powerful consumer group in America. Companies that can adapt to their needs and cater to their tastes will win out. Those that can’t, well, they’re going to get crushed.

Some are already doing a better job at this than others.

Take, for example, Winnebago (NYSE: WGO). You might think the iconic RV maker is a mainstay of the baby boomer crowd — and that’s certainly true.

But over the past couple years, the company quickly figured out that as boomers age, they’re going to need to appeal to millennials. And you’re not going to do that by trying to sell a millennial a $100,000-plus gas-guzzling RV or a $65,000 camper trailer (at least not yet).

Their answer? Say hello to the Winnebago Minnie, the Micro Minnie, and the Winnie Drop.

These retro-inspired towables are how the company is appealing to the “youngs.” And it’s working, too. Millennials in their early 30s who have some disposable income and a desire to hit the road are buying these things like hot cakes. When you think about it, it makes sense. After all, what’s more nostalgic than a young family loading up into a trailer and camping out in the woods?

Clearly, Winnebago thinks it’s on to something here. And you can’t argue with the results in the stock price:

Through a few strategic acquisitions and savvy marketing, Winnebago seems to have figured things out. This is definitely a company I’d put on my watch list.

A Swing And A Miss
Contrast this with a company like Harley-Davidson (NYSE: HOG), which seems to be having less success trying to figure out millennials. According to a report from AllianceBernstein: 

“…new bike sales have persistently missed due to demographic shifts. Declines in pre-family (ages 25-35) and post-family (ages 45-70) cohorts show millennials, the largest age group outside of boomers, have little interest in riding motorcycles.” 

The report continues:

#-ad_banner-#”We estimate rider growth has declined from a 3-5% annual growth pace pre-financial crisis to close to 0% today,” wrote Beckel. “If our back-tested model is predictive of the future, we expect rider growth will dip into negative territory in 2017 and stay in negative territory for at least the next five years.”

A pretty bleak picture. In response, Harley’s CEO Matt Levatich had this to say (full interview link): 

“You can’t just look at new bikes. The used bike marketplace has 2 1/2 times the turnover of the new bike marketplace. There are plenty of millennials riding motorcycles. It’s up to us to inspire them to ride and engage with Harley-Davidson.”

It should be of some comfort to shareholders that Levatich isn’t writing off millennials completely. And to be sure, it has made significant efforts to reach out in this regard — so much so, in fact, that it is the number-one bike manufacturer for millennials.

Levatich is right that it’s just not true that millennials don’t ride bikes. The mainstream financial media is wrong about that. There are plenty of under-35s riding motorcycles in young, hip, urban areas throughout the country.

The thing is, though, they’re riding older, vintage bikes. With much smaller engines than Harley makes. (For bike enthusiasts, I’m talking about things like the cafe-style bikes from the 1970s and 1980s made by Japanese and English manufacturers, with engines around 500 cc.) These bikes can be had for just a few thousand dollars, have low insurance premiums, and make for great commuter bikes — with a little vintage “edge” to boot. Simply put, these bikes are cheap, and they have a story behind them. This checks a lot of boxes for what millennials are looking for.

One of Harley’s target bikes for millennials (the new Roadster modle), on the other hand, has a 1200 cc engine. And it will set you back at least $11,300 — a cheaper bike for Harley, but not necessarily for millennials.

How To Adapt Your Own Portfolio
Will Harley Davidson be able to crack the code? Will other companies learn from Winnebago’s success? Only time will tell. But keep these ideas in mind when thinking about your stock picks over the next few years. Understanding the key millennial demographic will play an instrumental part in finding growth for your portfolio.

But the growth of millennial spending power isn’t the only trend that will shape the market in the years to come… The shift to a cashless society, the rise of autonomous vehicles, and emerging technologies we can only dream of today will make and break the companies of the future. Fortunes will be made by those who note the rise of these companies — but only for those who know where to invest.

My colleague Jimmy Butts spends his days analyzing these kinds of trends, looking for first-movers and competitive advantages. He sends his newest finds to subscribers of his premium newsletter, Top Stock Advisor, with the goal of helping them a portfolio of “forever stocks” that are set to grow indefinitely. These are picks you can buy and forget about, leaving you free to enjoy your ever-growing wealth. Click here to try out Jimmy’s service at no risk, and get his seven favorite “forever” stocks right now.