3 Stocks to Capitalize on Millennial Tastes

Millennials are coming into their own. Invest accordingly. Image source: Getty Images.

Millennials reached a huge milestone earlier in 2016, when they passed their baby boomer parents to become the most populous generation in America. Not only is this the most educated and tech-savvy generation, but it's also coming into its own financially and is set to be a huge driving force behind the American economy for decades to come.

Smart investors recognize this for the opportunity it is, too. Millennials, like any prior generation, have unique tastes and preferences, and some of the best investments in the coming years are likely to be companies millennials love.

Looking for a stock that's set to win big on the back of millennials? Keep reading for three that our contributors think are right in the millennial wheelhouse.

Surf the e-commerce wave

Brian Feroldi: Millennials tend to be far more tech-savvy than older generations, so perhaps it should come as no surprise to learn that they love to buy products online. That fact bodes well for the future prospects of digital payment leader PayPal(NASDAQ: PYPL).

Millennials conduct commerce as virtually as possible. Image source: Getty Images.

PayPal has been gaining market share in the electronic payment space ever since it was founded in the late 90s. Despite its age, the company's platform continues to grow rapidly. Total payment volumes grew on a currency-neutral basis by 29% last quarter, which was faster than the growth of e-commerce sales in general. In addition, the company has made it easy to use its services on mobile devices, which has proven to be a huge hit with consumers. Roughly 28% of the company's total payment volume took place on a mobile device last quarter, and I'd wager that number is bound to rise given the incredible worldwide popularity of smartphones and tablets.

There are also ways for this company to grow beyond its core PayPal brand. PayPal's management team has a nice history of making smart acquisitions of other fast-growing payment companies. In 2013, PayPal acquired a payment processing start-up called Braintree, which brought the incredibly popular digital transfer money app Venmo under its umbrella.Last year, it purchased the online money transfer service Xoom, which is rapidly displacingWestern UnionandMoneygramin theglobal remittances market.

When you add Venmo and Xoom to the fact that millennials' purchasing power is bound to expand over time, PayPal looks well positioned for decades of growth. That makes this stock a great way to profit from the rise of the millennial generation.

The fast-casual revolution

Image source: Shake Shack.

Tim Green: According to a 2015 survey by Morgan Stanley, fast-casual restaurants are the preferred restaurant format for millennials. Millennials account for 51% of fast-casual customers but made up just 31% of the people surveyed.

This doesn't mean fast food and full-service restaurants are doomed, but it does mean fast-casual chains have a major opportunity in front of them. While Chipotle is the creme de la creme of the fast-casual world, its recent food safety scandal has scared a significant chunk of its customers away. For investors looking to capitalize on the fast-casual trend among millennials, a smaller chain with a huge runway for growth is the best bet. Shake Shack (NYSE: SHAK) fits the bill.

The high-end burger chain is still small, operating just 51 restaurants at the end of the most recent quarter, with another 44 locations licensed. The company's food is expensive, limiting its ultimate size, but it has a cult following and generates an exceptional level of per-store sales. Each restaurant produces over $100,000 in sales per week, a number that, while sure to drop as the company expands, is impressive nonetheless.

Shake Shack stock is not cheap, even after cratering soon after its IPO. But with room to grow the restaurant count into the hundreds, and with millennials' preference for fast-casual restaurants, Shake Shack has "growth stock" written all over it.

Housing and sustainability

Jason Hall: Millennials have been slower to buy homes than prior generations, but they are still buying, if later in life. One company that's primed to benefit from millennials becoming homeowners isTrex Company, Inc.(NYSE: TREX).

Trex is already the leader in the alternative wood decking product category, commanding more than 40% of the market in 2015. But when it comes to market share of the total addressable market, there's a huge opportunity to grow:

Image source: Trex presentation.

Trex sales make up less than 10% of the total board-feet of decking sold in North America each year. So, as much as the company has grown its share of alternative wood decking sold each year, Trex is still a mere sliver of the total decking pie.Millennials are likely to help grow that slice much bigger.

According to a 2015 Nielsen survey, millennials put more importance on environmental stewardship than prior generations, with 75% saying they're willing to pay more for products that offer better sustainability. That falls right in the wheelhouse of what Trex does, with its award-winning decking, which is made of recycled wood and polyethylene plastic.

Factor in a relatively healthy housing market -- and one millennials are becoming bigger participants in -- and Trex could benefit from the growth of millennial homeowners for decades to come, particularly as they look for more environmentally sustainable ways to improve their homes.

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Brian Feroldi owns shares of CMG. Jason Hall owns shares of CMG and Trex. Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends CMG, PayPal Holdings, and Trex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.