Four stocks to play the ‘millennial boomers’ theme – Kames Capital

So-called ‘Millennials’ or ‘Generation Y’ currently comprise around 20%* of the UK population and total 92 million in the US, making them the largest generation in the country’s history, bigger even than the ‘Baby Boomers’**. While definitions of the age range of ‘millennials’ varies, studies have shown that those in the early/mid-20s to mid-30s age group behave considerably differently to previous generations with regards to their finances.
Craig Bonthron, co-manager of the Kames Global Sustainable Equity Fund says, “millennials tend to concentrate their spending on leisure experiences – i.e. cooking and eating out – rather than on material possessions. More demanding than their predecessors, they also expect higher quality and healthier ingredients in their food.” This drive for quality does not stop there, however. “As they ‘settle down’, something they are doing later than previous generations, millennials are demanding very high standards when building or improving the infrastructure around their lives – i.e. making home improvements,” Bonthron adds.
Bonthron says that while the fund selects holdings on a bottom-up basis and on their individual merits, there are a number of stocks within the portfolio which are well positioned to play this ‘millennial boomers’ theme.
Ingredion and Kerry
“US-based Ingredion and Ireland-based Kerry are global food ingredient companies, working for branded or large own-brand (supermarket) consumer food manufacturers. They enable these firms to develop new products which consumers want and help them to adapt to new trends and tastes: i.e. millennials’ shift away from traditional packaged foods with artificial processed ingredients towards fresh, organic and healthy alternatives. There is also a strong growth in smaller niche brands. As such, there is a growing demand for the services of these ingredients companies as they can support (a) the need for large global players to adapt and (b) emerging new niche brands’ growth. Ingredion and Kerry compete to a certain extent globally but tend to have different niche specialities.”
Mohawk Industries
“Mohawk is a US-listed designer / manufacturer of flooring for residential and (to a lesser extent) commercial construction markets. Traditionally a carpet manufacturer, it has diversified into different flooring types (ceramic, vinyl etc.) and different regions via acquisitions. It is a big beneficiary of what Americans refer to as Repair and Remodel (R&R) activity in the residential housing market. It is a very well-managed business and the largest player in a fragmented market, giving it scale, distribution and cost leaderships versus the competition.
“Mohawk will benefit from the millennial boomers as they form families and shift from urban living in apartment blocks to suburban living in houses. This has been delayed up until now and is currently running five years behind expected estimates. But it won’t be delayed forever and as this evolves over the next five years (assuming we avoid another economic shock) we will see a meaningful uptick in R&R spending which will benefit Mohawk.”
Mednax
“Mednax is a US provider of neonatal care clinics, anaesthesiology and radiology services within US hospitals. Neonatal care (under the Pediatrix brand) is the original and largest part of its business. The number of sick and premature babies is a direct function of the total number of babies born in the country and US birth rates have been depressed relative to history for a number of years. Americans have historically had babies earlier than the UK / Europe (average around 25 years), but millennials have delayed having children due to generational and economic factors; birth rates have yet to pick up to reflect the demographics. As with Mohawk, it is expected that family formation birth rates will pick up over the next five years, benefiting Mednax due to this direct relationship.”
* Source: According to the Office for National Statistics, 20.14% of the UK population was aged between 20-35 years of age, as at mid-2015.
** Source: Goldman Sachs Global Investment Research/US Census Bureau