3 Stocks that will Outperform During the Coming Wave

“There’s somethin’ happenin’ here. But what it is ain’t exactly clear.”
– “For What It’s Worth,” Stephen Stills, Atco Records, 1966

While used in a multiple movies depicting the turmoil of the 1960s — whether it was the war in Vietnam or civil unrest back home — the eponymous Buffalo Springfield song proved to be more prophetic than previously imagined. On the surface, the song communicates youth chaos and frustration with the social and political issues of the time. But the real story was the seismic demographic shift occurring in the United States at the time; the first of the Baby Boom generation were morphing into young adults.

Over the next 34 years, this force of 65.2 million Americans basically drove all aspects of the American economy.

The transition is happening again. Only this time, their kids are driving the bus. And gonzo journalist Hunter Thompson is nowhere in sight.

First, a look back. The new America super-generation, the Boomers, were 18 to 20 years old. During this turbulent socio-political-economic period, these young adults were being trained, either in colleges or in the blue-collar workforce, to eventually become productive members of society.

By 1982, their “training” was complete. Most Boomers started entering the better-compensated phase of their chosen careers. They formed families and were raising 2.09 kids per household. In short, Boomers were an economic juggernaut. The first wave of them were turning 36 and the market took off. Coincidence?

Look who started turning 36 in 2018. Their kids, the Millennials. They are 83.1 million strong, with new-found spending power spending power of their own.

The secular sideways market we saw from 1999 to around 2015 – the 16 years before the Millennials started coming of age — is a dynamic similar to the one we saw from 1966 to 1982, the 16 years before the Boomers entered their mid-30s.

History doesn’t always repeat but it often rhymes. If this is the case, we’re into a secular bull market that has more than a decade left to run.

I’m excited about the long term outlook driven by an enormous generational paradigm shift. As an investor, you should be, too.

Here are three stocks that I believe are poised to outperform during this phase:

The Walt Disney Co. (DIS) – The company that made sure every Baby Boomer wore a Davy Crockett coonskin cap as a kid will hold the same magic sway over their grandchildren. Only this time, it’s at the customers fingertips 24/7.

The launch of the Disney+ streaming service this past spring has garnered a mind-blowing 54.5 million subscribers. And with a premium upgrade for access to the company’s live-action rendition of its animated hit “Mulan,” the House of Mouse will continue to dominate despite the lumps provided from the Covid-19 pandemic.

With the first band of Millennial offspring out of diapers, expect a surge in Disney’s theme park and travel business once confidence in leisure travel returns post-pandemic (hint: it will). The seemingly infinite stream of Disney toys and other licensed products that will litter Millennial dens and hallways for the next decade are the icing on the cake.

Disney shares have given up close to 13% this year. Not bad, especially if you consider that 37% of its business (parks) came to a screeching halt in the first quarter of the year and is just beginning to come back on line. The stock is trading about around $130 a share.

The Home Depot, Inc. (HD) – It was true in 1982 and it’s true today: When Americans begin the nesting phase of their lives, they tend to spend a lot of time at one of the biggest, best run, and “orangest” of all the big-box retailers. Walls need to be painted, decks water sealed, bathroom fixtures upgraded, and new appliances purchased. And Home Depot is the go-to place for all of that stuff.

Since its birth as a public company in 1981, management has been able to consistently deliver stellar results. Net margins come in right at 10%; that’s unheard of in the retail business. Nearly $6 billion in annual free cash flow and a dividend growing at a 26% annual clip make the stock a must-own for long term, demographic-driven growth. Shares are trading at around $276, a 6% discount from their 52-week high, with a 2.17% dividend yield.

Kimberly Clark Corporation (KMB) – One word: diapers. 80 million+ babies will need a LOT of Huggies. And as any parent can tell you, toddlers and small children will drive your household consumption of paper towels, napkins, and toilet paper exponentially.

Is it exciting? It’s a paper company. Nothing to do with 5G. But KMB is a consistent earnings machine and the stock is a plough horse at $148.44 with a 2.88% dividend yield.