3 Surprising Gen Y Trades
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So many rites of passage lay ahead for our Generation Y’ers but it seems that buying a new car isn’t one of them. Neither is buying a home in the suburbs. They are growing up and some surprising companies are courting their customs.
Gen Y Drives Less
The first important trend about Generation Y, according to an April 2012 report by the US Public Interest Research Group and Frontier Group, titled Transportation and The New Generation, is that they are driving less than their parents or even their Generation X older relatives. And it’s not just the cost involved in car ownership.
One might assume that new burdens of paying rent, smaller paychecks than expected, and student loan debt are scaring them off. The study states on its first page to emphasize the point that,” People who are unemployed or underemployed have difficulty affording cars, commute to work less frequently if at all, and have less disposable income to spend on traveling for vacation and other entertainment. The trend toward reduced driving, however, has occurred even among young people who are employed and/or are doing well financially.” The boldface is their emphasis.
Zipcar (UNKNOWN: ZIP.DL2) would be the logical beneficiary toward the growing car-sharing trend. However, and you knew this was coming; Zipcar seems to be having trouble executing. The stock dived in August some 30% after its multi-car pileup of an earnings report. It also prompted seven analyst downgrades. Yikes!
This name has become a battleground stock between those ethical investors who like that Zipcar takes excess cars off the road and investors who believe in the long term societal trend for car-sharing versus the shorts who have taken it from just below $30.00 when it debuted in 2011 to $6.00 and change. The company has the membership car rentals available in major cities in the US, Canada, and the United Kingdom. They also inked an agreement for Ford (NYSE: F) to supply them with 1,000 cars to make available at college campuses throughout the US.
Reading the Yelp reviews for Zipcar are enlightening. They are fairly negative for the most part but my favorite was the guy who had just cancelled his Zipcar membership and complained all his friends tried to mooch his membership so they could move stuff without having to pay the application and membership fees. He was tired of being the guy with the car come moving time. Those Car Talk guys on NPR used to joke, “A friend will help you move but a real friend will help you move the body.” But I digress.
A number of the reviewers much preferred the Hertz On Demand service. Averaging over $80 a day in NYC and more on weekends (this does not include the membership fees) I can’t see that Zipcar is such a good deal for members. One last thing about Zipcar, a venture capital firm has started a private driver and car on demand service called uber.com which is gaining steam in San Francisco. All kinds of car-sharing models are likely to assault the ever more shallow Zipcar moat.
The play on this Gen Y trend, surprisingly, would be Ford. It seems counter-intuitive but Ford was smart enough to have inked that deal with Zipcar to place Ford cars on college campuses and once they start driving the Fords there will come a time they will be buying Fords. Ford’s P/E is 2.37 and has a 1.90% yield. It’s been trading in a range between $8.42 and $13.05 for some time. Despite the trend toward less driving, Americans will still drive and Ford has been improving their quality issues for years. Just on September 17 it debuted a new Ford Fusion that some have dubbed the “Camry killer”.
Ford is also moving into China big time. With China spending more to improve its transportation infrastructure. Ford is anticipating this by gearing up to produce over 1 million vehicles for the Chinese market by 2015.
Bright Lights, Big City
The next big Gen Y trend is that they are fleeing the suburbs and moving to urban centers. Target Corp. (NYSE: TGT) has been spot on by opening City Target stores in urban centers like Seattle, New York City, San Francisco, Chicago, Los Angeles, and Portland, Oregon, all hubs for Gen Y jobs.
The stores are located in multi-story landmark historical buildings in the heart of the cities. They carry most of the same merchandise as do traditional Target stores but are more city living related i.e., no lawn mowers and bulky products. The stores also will focus on the designer for Target collections that the more fashionable but budget-conscious urban dwellers will appreciate.
Competitor Wal-Mart has been a little late to jump on the urbanite bandwagon and still has not landed a NYC location. A planned location in Brooklyn fell through and a Shop-Rite will move there instead.
Target is trading near all-time highs as are most of the retailers these days but it still has a 2.20% yield and a 14.73 P/E. It has recently been expanding into Canada.
The company, like Macy’s, has been localizing its inventory to suit local buying trends and City Target is just a more concentrated version of that.
Mmmm, Mmmm, Good
The third Gen Y stock is Campbell Soup Company (NYSE: CPB). Soup?? Campbell's has been working hard to develop more On The Go soup flavors as well as making more gourmet and healthier soups. Their July analyst day report specifically targets Millennials as a demographic they plan to cozy up to.
With its recent acquisition of Bolthouse Farms, Campbell’s is moving into the fresh and healthy produce section of the supermarket with the Bolthouse Farms product line of packaged fresh carrots, juice drinks, and refrigerated salad dressings.
Campbell’s is counting on a Gen Y retro affection for the brand and updating that with new flavors like Butternut Squash Bisque and Creamy Gouda Bisque with Chicken soups.
The stock has a 14.47 P/E and a 3.40% yield. The company also has other healthy brands like Pepperidge Farms and the V-8 line of fruit and vegetable smoothies and juices.
Stocks for the Next Generation
Of course, you could also buy an unsurprising and obvious Gen Y stock like Google (NASDAQ: GOOG), with its Android phones and Nexus tablets, but these other three names are stealth plays on Gen Y trends like healthier and convenient eating, less driving, and urban living. I give you three stocks, all with yield and one with an amazingly low P/E, Ford. The Ford choice, as I said, is counterintuitive but Ford is seeking to offset that decline in American driving with an expected major upswing in Chinese and emerging market driving. Also, when the Millennials do drive the Fords they rent in college and during their first years out of the nest Ford is counting on the positive experience to make them loyal customers for life. And I finally add that Zipcar as a Gen Y play is not ‘all that’ and may not be a short but surely is not a long.
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leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford, Google, and Zipcar. Motley Fool newsletter services recommend Ford, Google, and Zipcar. 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.