As Millennials Come of Age, It’s Time to Invest in the Baby Market

 

If flying robots being approved for commercial use and 3-D printers reproducing human organs aren’t proof enough that we’re a full 15 years into the new millennium, try this sobering fact on for size: Millennials have now surpassed Baby Boomers as America’s largest living generation.

According to the U.S. Census Bureau, millennials—defined as anyone born between 1981 and 1997, and thus currently 18-34 years of age—are projected to number 75.3 million people this year, outnumbering the Baby Boom Generation (born: 1946-1964) for the first time ever. Hard to believe.

What’s perhaps even harder to fathom is that many of those millennials who are entering their late 20s and early 30s are now getting married and having babies of their own. And thus, a kind of second baby boom is brewing.

That’s been good news for the baby market. With so many young parents in the fold, cribs, strollers, car seats, high chairs, changing tables, diapers, baby clothes, baby food, baby toys, baby monitors and children’s books are being bought in droves.

Millennials spent a reported $600 billion at retail stores last year. As they age, and some millennials start having second and third children, their buying power is expected to more than double in the next five years; management consulting firm Accenture projects that millennials will spend $1.4 trillion in 2020—roughly 30% of all retail sales.

Behind every consumer trend is an investment opportunity. With that in mind, the exploding millennial spending should be a flashing green light that it’s time to invest in the baby market—companies that are manufacturing and selling all those cribs, strollers and diapers to what is now America’s largest living generation—and also its most fertile.

What are your best options? As a father of a 14-month-old myself (though I’m technically not a millennial; I was born in the relative Stone Age of 1980), there are a few baby market plays that spring easily to mind:

  • Amazon.com (AMZN): In 2010, Amazon bought out Diapers.com for the purpose of creating Amazon Mom—a place where moms (and dads) can go to order diapers for their little ones at a discount price without having to venture out of the house with baby in tow. That convenience holds particular appeal for millennials, who are not only the most web-savvy generation but also good at finding discounts. 
  • Natus Medical (BABY): The maker of birth center equipment with the easy-to-remember ticker symbol has grown earnings per share and revenue for three straight years. One reason for the financial windfall is that more hospitals are buying Natus Medical’s equipment to enhance their treatment facilities. With a new wave of births, the need for better treatment facilities shouldn’t wane anytime soon.
  • The Children’s Place (PLCE): A specialty retail company that sells apparel for children ages newborn to 10 years old, The Children’s Place demonstrated some nice growth in 2014 after a couple of down years. Perhaps that’s a reflection of the millennials’ expanding influence on the baby market. Earnings per share improved 11.6% from 2013, and were up another 20% in the first quarter of this year. Meanwhile, the company started paying a modest dividend last year and upped its quarterly payout from 13 to 15 cents this April. The chart looks great too—PLCE shares have risen 29% in the last year.

One potential bonus play on the burgeoning baby market is The Honest Company. Co-founded by actress Jessica Alba, Honest makes eco-friendly baby products such as non-toxic diapers and wipes. The company is booming, with revenues exceeding $150 million last year—three times its 2013 revenue. (I’m not surprised: My wife and I swear by it, as do many of our friends—millennials and not.)

Honest isn’t a public company yet, but it just raised $70 million in preparation for an IPO that’s expected to debut later this year. The timing could be perfect, coming to market just as the baby market really takes off.

There are other markets that will benefit greatly from millennials coming of age: real estate, automobiles, health and fitness. But investing in the baby market is perhaps the most direct way to profit from America’s new largest generation. 


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