5 Stocks to Profit from "The Rental Generation"
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Just like "The Age of Aquarius" in the late 1960s, "The Rental Generation" is now upon us. As noted in a recent article in Bloomberg Businessweek, these are post-college youth who do not want the burdens of ownership, preferring to rent. With this freedom, they choose to eat out more and travel a great deal.
To profit from this lifestyle paradigm, investors should look at companies that are industry leaders that will cater to what was previously known as "Yuppies" from the 1980s. Rather than aspiring to own a BMW and condo, however, The Rental Generation looks forward to someone else dealing with the maintenance and upkeep expenses. That allows for more discretionary income to eat out and travel. As each college graduate today has more than $25,000 in student debt, on average, that is an understandable and rational response to the prevailing economic situation for The Rental Generation.
As with Yuppies, The Rental Generation resides in urban areas. While this lessens the need to own a motor vehicle, it does not do away with the desire for one, on occasion. Hertz Global Holdings (NYSE: HTZ), Enterprise-Rent-A-Car and Zipcar all offer hourly or daily rentals in cities and other locales. While Zipcar pioneered the hourly motor vehicles shared rental model , both Enterprise-Rent-A-Car and Hertz have similar operations. Year to date, Hertz is up 10.67%. On a quarterly basis, earnings-per-share growth is higher by 70.53%. Now trading around $12.97 a share, the mean analyst target price for Hertz Global Holdings over the next year is $19.50.
The Rental Generation will eat out twice as much. Whole Foods Market (NASDAQ: WFM) and Chipotle Mexican Grill will profit from this. For Whole Foods Market, the prepared foods, gourmet selections and eat-in facilities have a great appeal to The Rental Generation, as does its urban locations. Chipotle Mexican Grill offers a holistic dining experience that features menu items of a high quality and a moderate cost with social appeal in areas such as sustainable farming. One thing is certain about The Rental Generation: it is not the Olive Garden crowd!
Hitting the road more often, there is an emphasis on discount travel for The Rental Generation. Both Southwest Airlines (NYSE: LUV) and Spirit Airlines are positioned to benefit. Southwest Airlines has both pioneered and mastered the discount airline model. It has done this so well that it is not only the largest domestic airlines in terms of passengers flown annually, it is the only one that has been profitable every year since deregulation in 1978.
Spirit Airlines takes the discount model to the next level, charging for fees for pretty much everything beyond the bare bones travel model, including water. It works: Spirit Airlines is up 85.92% for the last year and has a robust profit margin of 9.06%. For Southwest Airlines, the profit margin is 1.99%.
The Internet is certainly nothing new for The Rental Generation. But the evolving role of Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY) has become much more unique in increasing and defining its role. Amazon started off selling used books, now consumer electronics are among its most popular items. The Kindle from Amazon is a very popular tablet with a Kindle Smartphone widely reported to be on the way. Both eBay and Amazon are moving forward on same-day service, which will further expand each's role in the quotidian aspects of everyday commerce for The Rental Generation, and many others.
While Yuppies wanted to own the finer things in life, The Rental Generation prefers to rent the same items. Looking at the performance of the housing market in recent years and how quickly goods depreciate after being bought (hello Amazon and eBay), that is not an economically imprudent approach to life. While renting pretty much everything possible and eschewing ownership may not appeal to everybody, the profits that will result for those owning shares in the companies that will benefit from this societal shift have a universal appeal for all investors.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Amazon.com, Hertz Global Holdings, and Whole Foods Market. Motley Fool newsletter services recommend Amazon.com, eBay, Southwest Airlines, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.