Get long boomer stocks and short millennial shares, says Bank of America

Published Wed, Oct 25 202311:24 AM EDTUpdated Wed, Oct 25 20231:05 PM EDT

Boomers have cash and appear to be weathering rising interest rates better than other generations, according to Bank of America. Due to this, the bank sees stocks particularly exposed to the well-off group that investors of all ages should buy. The baby-boom generation, born between 1946 and 1964, was in the prime working age during the main period of wealth creation, according to analyst Ohsung Kwon. Now, boomers and traditionalists — the generation that's directly older — hold about two-thirds of the total net worth, with a majority in financial assets such as real estate. The group of mainly sexagenarians and septuagenarians also benefited from the period of low mortgage rates. In contrast, Bank of America found millennials are the only generation with a meaningful amount of mortgage debt incurred after 2021, according to Bank of America. Bank data shows boomers have yet to feel the pinch from higher rates — and the wealthy subsection of the generation is actually benefiting from them. The data also showed boomers and traditionalists are the only generations that have increased spending year over year. Younger generations, meanwhile, are spending less as credit card delinquencies rise, Kwon said. He noted that boomers could feel pressure as cost-of-living adjustments to social security benefits cool. Those boomer dollars are mainly going to health care, entertainment and home improvement, Kwon said, which makes stocks in these spaces good longs given the strength of that consumer base. On the other hand, millennials' stretched dollars tend to go toward housing and apparel, meaning they can make good shorts. Luxury homebuilder Toll Brothers and real estate investment trust Welltower were both among Kwon's boomer-focused long ideas. Most analysts have buy ratings on both names, LSEG data shows, and are expected to see more upside after already outperforming the market so far in 2023. Kwon said boomers generally spend less on big-ticket items such as homes and focus more on home improvement, especially during a period of high interest rates. But he said stocks tied to new homes can still be good longs, given the potential for a wealth transfer from boomers to millennials and as overall net worth increases over time. TOL WELL YTD mountain Toll Brothers vs. Welltower shares in 2023 Kwon said American Express is one way for investors to have exposure to the wealthy boomer. Despite falling more than 2% since 2023 began, the average analyst is bullish on the stock with a buy rating and expected upside of nearly 20%, per LSEG, formerly known as Refinitiv. Funeral services provider Service Corporation can also be a long idea as boomers age, he said. After a more than 20% drop this year, analysts expect a rebound ahead. The average analyst has a buy rating and upside of more than 31%, according to LSEG. Given apparel is more prominent among millennials, Kwon pointed to Revolve as a short play. The millennial and Gen Z-focused fashion brand has lost more than 30% this year. — CNBC's Michael Bloom contributed to this report.