The Baby Boomer vs. Millennial Investment Smackdown

The millennials have come of age, but the impact of that generation on the stock-market’s returns is only beginning. Can they spur better results than the baby boomers, who are entering retirement?

To answer the question, The Wall Street Journal constructed two stock portfolios that we will revisit. The first should benefit from the growing spending power and priorities of the millennial generation, loosely covering people born between 1981 and 1996.

Although millennials are often confused with their younger cousins in Generation Z, they are now all grown up and most are finished with full-time education. In the next two years, the eldest millennials will turn 40. According to PayScale, that is the age at which female earnings peak on average, while an average man’s earnings rise until his early 50s.

The second portfolio was designed to capture the needs and desires of the wealthiest cohort, the baby boomers born between 1946 and 1964, who have entered or are entering retirement.

While they are on their way out of the workforce, or have already left, the boomers have an overwhelming presence in American economic and political life. For now, their behavior leads the market.

A spate of recent stock listings has highlighted the growing generational gap in U.S. investing. On the millennial side, the listing of Beyond Meat Inc. last month sparked a flood of interest-and skepticism-in vegetarian but meat-like products.

While some chains have embraced such foodstuffs, Arby’s President Rob Lynchscoffed in an interview that “people aren’t willing to pay more for something that tastes worse.” That rupture may go some way to explain why Beyond Meat is now the most expensive U.S. stock to sell short. The matter of taste is subjective, but many investors are now betting that a younger and increasingly affluent generation will indeed pay up for something they regard to be more ethical or environmentally friendly.

On the boomer side, longevity and human frailty are themes. By 2035, the Census Bureau says there will be more Americans over 35 than under 18. The boomer portfolio, understandably, is heavy on major pharmaceutical and health-care names.

Entertainment presents a stark division: As younger people embrace streaming companies such as Netflix , traditional TV networks like CBS are increasingly broadcasting to people in their 60s or older.

Another division: Many millennials have delayed household formation in the aftermath of the global financial crisis, but they are entering their prime house-buying years-something from which real-estate developers like Lennar stand to benefit. But so will owners of rental properties such as Equity Residential as many prefer the flexibility or will never have the financial wherewithal of the older generation.

On the side of property-owning boomers, companies such as Home Depot that benefit from renovation spending, and real-estate investment trusts such as Welltower , which owns senior-living properties and medical buildings where many will spend time, stand to benefit.

The leisure preferences of the different generations are reflected by the portfolios. Recreational-vehicle manufacturers like Thor Industries and cruise lines including Royal Caribbean appear on the boomer list, while some that produce exercise equipment or benefit from increasingly available legal marijuana, such as Canopy Growth , appear in the millennial mix.

But getting access to a generation with rising spending power and a longer life expectancy doesn’t come cheaply. The millennial portfolio is far more expensive on a ratio of price to sales than its boomer counterpart: some 24.7 compared with 3.65 for the boomers.

Tech stocks are, predictably, found in the millennial portfolio, but not exclusively. Facebook , for example, stands to benefit from the increased time and disposable income of the retiring generation since it is the only social-media platform that has captured its attention: Almost half of over-65s use it, according to recent Pew surveys, more than triple its nearest competitor’s share.

Both portfolios are equal-weighted to avoid domination by larger or more volatile names. Past performance means little since some in the millennial portfolio, such as Beyond Meat and Uber Technologies , have listed only recently.

Conventional wisdom dictates that one wants to own companies just starting to ride a wave, not cresting it. This ignores two factors that might favor the boomer portfolio, though.

One is simply that dowdy brands are cheaper. Beyond Meat is worth more than three Bed Bath & Beyonds.

Another is that boomer brands and their habits in general have stood the test of time while those of the more fickle and impressionable younger generation haven’t. Some will become the ubiquitous household names of tomorrow. Others will be expensive wipeouts.

Stocks in the Millennial Portfolio: Beyond Meat, Uber, Snap, Cronos Group, Shimano, GoPro , Tesla, Fitbit , Lovesac, NextEra Energy , First Solar, Advanced Micro Devices , Canopy Growth, Lennar, D.R. Horton , Netflix, Equity Residential

Stocks in the Boomer Portfolio: Saga PLC, Facebook, HCP, Spire Healthcare , Pfizer , Royal Caribbean Cruises , Archer-Daniels-Midland , Tyson Foods , Welltower, Berkshire Hathaway , Booking Holdings , CVS Health , Boston Scientific , Las Vegas Sands , CBS, Home Depot, Thor Industries.

By Mike Bird