Introducing The Millennial Stock Portfolio (Part 3)

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Includes: GRUB, LULU, YELP
by: Matthew D. McCall

Summary

Millennials prefer to order food online.

The activewear trend will continue with millennials.

Millennials prefer user-generated content.

3 New Millennial Stock Ideas.

Below are the next three stocks in our five-part millennial portfolio article.

GrubHub Inc (NYSE: GRUB) provides an online and mobile platform for restaurant pick up and delivery orders. It currently operates in more than 700 cities and is focused on transforming the take-out experience and taking it all online. The company's portfolio of brands includes GrubHub, Seamless, Menupages, and Allmenus.

Millennials have grown up in the golden age of technology with a mobile device in their hands the majority of their day. And therefore, transitioning into ordering take-out from their phone is seamless; pun intended. GrubHub has met that need with an easy to use product, perfect for people who don't want to leave their desk or pick up the phone to order food. According to NPD Group's research, more than 50 percent of Millennials spend their food budget on takeout orders. The company is processing approximately 174,000 orders per day.

GRUB has been tremendously popular since going public in April of 2014, and their second quarter financials are the proof. The company more than doubled revenue, in the last year as it increased to $60 from $26.9 million. GRUB also managed to increase cash and cash equivalents from $53.9 million for the 6 months ending June 2013 to $207.1 million for the six months ending June 2014. Since going public the stock is up 5 percent.

The company is projeced to earn 30 cents per share in 2014 and grow that number by 47 percent to 44 cents in 2015. And then nearly double again to 81 cents in 2017. With a current P/E ratio of 123 based on 2014 earnings the stock is considered overvalued, however when the growth potential in the next few years is taken into consideration the company is more attractive. It is not uncommon for high growth stocks to trade with a high P/E ratio in their early years.

Lululemon Athletica Inc (NYSE: LULU) designs manufactures and distributes athletic apparel and accessories for women and men with a larger emphasis on women. With health on the forefront of many millennials minds, exercising is a very important part of their day. The current trend has millennials and other young generations wearing activewear, also known as athleisure, both in and out of the health clubs.

According to research firm NPD Group Inc., for the 12 months ending in February, activewear sales increased by 9 percent versus a small gain of 1 percent for the overall U.S. women's apparel group. LULU has capitalized on the trend, as their clothing is now appropriate to wear in the health club as well as casual settings.

Revenue for the second quarter increased to $390.7 million from $344.5 million on year earlier. Despite increased revenue LULU had much higher expenses, resulting in a decrease in net income by 13.7 percent. The stock has struggled over the last year, losing 47 percent of its value and trading near a multi-year low.

Over the last year years earnings has been stagnant for the apparel company with fiscal year 2015, which they are in now, expected to drop by 7 percent from one year earlier to $1.77 per share. However earnings are expected to increase by 14 percent next year and another 17 percent the following year. The current P/E ratio of 19.2 is not overly attractive, but if growth continues to accelerate the pullback in the stock price over the last year creates a long-term opportunity for investors.

YELP Inc (NASDAQ: YELP) is an online guide that allows the average person to share their experiences at a variety of business that range from restaurants to medical professionals. While the older generations will take the word of a co-worker or family member, the millennials are turning to YELP and the Internet to determine if they will spend their money at a specific establishment.

A trend that is in YELP's favor is that millennials trust user-generated content 50 percent more than any other media and on top of that they spend a total of 18 hours per day on various types of media. With millennials continuing to rely on user-generated content and more devices to help keep them connected, the trend is favoring companies such as YELP.

YELP continues to rapidly expand as a brand in an attempt to take over the industry. During the second quarter average monthly unique visitors grew 23 percent year-over-year, and average monthly mobile unique visitors grew 34 percent in the same timeframe. Their revenue increased by 61 percent from last year to $88.8 million from $55 million. The stock is down 1 percent over the last 12 months.

The company is expeced to be profitable for the full year in 2014, the first time as a publicly traded stock. More importantly the growth of earnings over the next few years is what makes the stock attractive. This year earnings are expected to come in at 9 cents per share, followed by 40 cents in 2015 and looking out a few years the estimate for 2018 is $3.68 per share. If the company can keep up with the estimates the stock price should follow to new highs in the years ahead. Then there is the rumors that have been floated around that YELP could be a takeover target at some point based on its phenomenal growth.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.