Consumer Stocks Being Reshaped by Changing Tastes of Millennials

Their view may be geared toward the next generation of investors rather than just consumers, but the preferences and trends being set here are hard to ignore. The consumer staples group actually has some of the best growth rates for investors.

Millennials are demanding a new menu of healthy, organic and natural fares. This has many established companies such as Starbucks Corp. (NASDAQ: SBUX) and Constellation Brands Inc. (NYSE: STZ) adapting to new ways to get millennials as their customers. Companies such as Hain Celestial Group Inc. (NASDAQ: HAIN), WhiteWave Foods Co. (NYSE: WWAV) and Monster Beverage Corp. (NASDAQ: MNST) are growing much faster than the old consumer staples warhorses. Accordingly, they have become some of the hottest stocks in the market.

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Between 1970 and today, there was a major transformation in companies. They shifted from a largely domestic customer base to a global customer base. At the same time, the overseas conquest included exporting some brands, but it was principally driven by acquiring local assets and absorbing them into global go-to-market models.

The baby boomers were such a mighty demographic force that they overshadowed the follow-on Generation X. While there was some second-generation overlap, many boomers competed for jobs with Gen X rather than parented them. The biggest part of the boomer cohort bore the children known as the millennials, those born between 1982 and 2000.

The Argus report makes a distinction between generations:

Boomers, in their younger days, openly fought with their “greatest generation” parents over politics, race, feminism, the Vietnam War, sexual mores, and drugs. But over time, their fire died down. Boomers, for all their early rebelliousness, grew up on Classic Coke and Big Macs, and never really questioned where their jeans and sneakers were coming from. Millennials are staging a subtler but more sustained rebellion. They don’t decry their parents’ beliefs, mores, or tastes; they simply have not adopted them. Without the protest-march fanfare of young boomers, Millennials have quietly extracted elements of the 1960s and 1970s counter-cultural ethos, including “back to the land,” “sustainable,” and “green.”

Millennials have grown up in the digital age, which has granted them insight into the real world never experienced by prior generations. Constantly immersed in the real-time news cycle, millennials insist that their workplaces use resources sparingly, practice sustainability and treat workers fairly. In short, millennials are completely at home in the consumer economy, but they are reshaping it to produce the goods, products and services they want.

More than 92 million millennials were born between 1982 and 2000. Considering this age spread, their purchasing power is still emerging. According to the Argus research, millennials have $300 billion in direct purchasing power, mostly representing older millennials established in their work and families. They also have an additional $500 billion in indirect purchasing power, representing spending by their mainly boomer parents.

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Hain Celestial

Hain is a play on continued strong demand for natural and organic foods, given its well-known brands including Celestial Seasonings, Earth’s Best, Terra, Health Valley and other brands. The company’s fast-growing customers include natural and organic grocers such as Whole Foods Market and Sprout Farmers Market, along with distributors such as United Natural Foods. Equally important, Hain is gaining shelf space with traditional grocers ranging from Kroger’s to Wal-Mart Super Centers.

Hain Celestial was given a price target of $74 by Argus. Shares of Hain were down 0.7% at $65.18 midday Thursday, in a 52-week trading range of $40.84 to $66.35. The stock has a consensus analyst price target of $66.22.

Monster Beverage

The company markets and distributes energy drinks and other alternative beverages. The company has an impressive history of growth, with five-year compound annual sales and EPS growth rates in the 13% to 15% range. Late in 2014, Coca-Cola agreed to pay $2.15 billion for a 17% ownership stake in Monster. Under the terms of the deal, Coke will transfer its $2 billion energy drink business to Monster, which will then transfer its non-energy drinks to Coke. Coca-Cola will distribute Monster products domestically and internationally. The deal, amended in February 2015 to include more territories, is expected to close before mid-year.

Monster Beverage has an Argus price target of $164. Shares of Monster were down 0.2% at 137.37, in a 52-week trading range of $63.00 to $143.90. The consensus analyst price target is $149.19.

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Starbucks

This company has continually reinvented itself — not only its menu items, but its retail distribution, new partnerships, new online ordering options, and social media and mobile strategies. According to Argus, Starbucks is more attuned to social issues than any comparably sized public corporation. Starbucks has been in the forefront of fair compensation initiatives for coffee field workers. And the recent pledge to pay baristas’ college costs resounded across the generations to include beleaguered boomers burdened with their offspring’s college debt.

Starbucks has a price target of $54 from Argus. Starbucks shares were up fractionally, at $48.29 in a 52-week trading range of $34.57 to $49.60. The consensus price target is $50.02.

WhiteWave Foods

WhiteWave markets plant-based foods and beverages and dairy products in North America and other markets. The company is widening its domestic and overseas distribution and is gaining market share in Europe. Its Horizon brand is often the most price-competitive among pricey natural and organic product offerings. WhiteWave has exemplary growth rates, including five-year compound annual growth rates of 17% in revenue, 15% in net income and 10% in EPS.

WhiteWave Foods has an Argus price target of $49. Shares were relatively flat at $46.67. The 52-week trading range is $26.35 to $47.07, and the consensus price target is $45.35.

Constellation Brands

Constellation is the world’s largest wine producer and a maker and marketer of spirits and beer. It owns the rights to brew and market Modelo Mexican beers (including Corona) in the United States. While providing some of the most popular beers among young drinkers, Constellation was said to be the most aligned with millennial tastes based on its deep and varied roster of wine brands.

Shares of Constellation Brands were up 0.4% to $117.95, in a 52-week trading range of $78.43 to $121.92. The consensus price target of $126.20 is less than the Argus target of $140.

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24/7 Wall St. would note that other companies are also benefiting from millennials, as well as other groups. These were not featured in the Argus report but perhaps should have been:

• Chipotle Mexican Grille Inc. (NYSE: CMG) saw its shares up fractionally Thursday at $679.32. The consensus analyst price target is $741.71, and the 52-week trading range is $472.41 to $727.97. Can you imagine that this is a top destination for dates?
• Whole Foods Market Inc. (NASDAQ: WFM) shares were down 0.9% to $49.75, in a 52-week trading range of $36.08 to $57.57. The stock has a consensus analyst price target of $55.64. When it comes to selling organic and mostly natural foods, the king of the market is Whole Foods. Still, millennials might think the same thing as the rest of the age groups in calling it “Whole Paycheck.”