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Written by: Carly Rothbort
Millennials are starting to have families, making Gen-X and Baby Boomers grandparents. Last week alone, I personally know of four babies who entered the world. One was a family October surprise! This year, my niece turned one and they are not joking when they say, “they grow so fast!”. As Generation Alpha (2010-2025) wraps up, there are an estimated 2 billion children born to this generation, making it the largest in history. Compare that to the estimated 76 million Baby Boomers.
Baby’s needs have not changed significantly from generation to generation, but we must wonder, what has the impact of modern-day marketing, technology, and product innovation done for the consumer? From necessities like baby clothing to diapers and formula, a few brands have dominated the market. Proctor & Gamble’s (PG) popular Pampers (say that 5 times fast) and Abbot Laboratories’ (ABT) Similac along with Costco’s (COST) Kirkland Brand are just a few examples of brands and companies that parents are gravitating to these days. Whether you are looking for a value or high-end brand, there is something for every consumer.
We own both ABT and COST in our dividend value and consumer discretionary strategies, respectively. But when taking a deeper dive into the baby industry, we recognized other stocks that catered to babies, infants, and toddlers that were worth further exploration. A lot of well-recognized and trusted brands are private companies which we must exclude. We broke the industry out into separate categories and chose one stock for each that we believed was the category winner.
Retail
If you remember, looking back at an earlier My Two Cents, WMT has been one of our winning picks and those sentiments still remain. Babies go through approximately 10 diapers and about 25 wipes per day. Extrapolate that for a whole year and that’s lots of diapers and wipes. With this ongoing daily cost, parents are looking to buy these products in bulk. That is why many parents are turning to COST to get the most bang for their buck and always have a supply on hand. From COST’s own Kirkland Brand to Huggies, this retailer has options to purchase a value product or a higher quality stock of products, respectively. The manufacturers of Huggies also make Kirkland diapers, resulting in a similar product (we’ll discuss this further later). In this current economic environment, you cannot beat the price of these baby staples at this ever-growing retailer.
Recently, COST raised their annual membership fees, from which most of their profitability derives. We believe their business model along with continued consumer interest will continue to make this stock a winner. We will continue to hold the stock but do however hope they announce a stock split soon.
E-Commerce
Advances in technology and e-commerce have made the offering of products more egalitarian and have created a proliferation of offerings available to the consumer. With just one click of a button, almost anything you need can be delivered the same day or within two days without so much as leaving your home. Amazon Inc. (AMZN) has made way for parents to have more flexibility in their lifestyles. After a robust third-quarter earnings release and call yesterday, AMZN reported stronger earnings-per-share and higher than estimated revenue.
Consumer Non-Discretionary
As mentioned earlier, Huggies can be purchased at COST giving it a great market advantage. Huggies, owned by Kimberly-Clark Corporation (KMB) has a low price-to-earnings ratio and 3.63% dividend & yield making the stock more attractive than its competitors PG, ABT, and Johnson & Johnson (JNJ). In addition to Huggies, KMB produces brands like Pull-Ups, Little Swimmers, Kleenex, Cottonelle, and Kotex to name a few. Regardless of the economy, consumers need most of these products to sustain their daily lives, making this an alluring stock.
Other Consumer Brands
After doing extensive research on popular baby brands and their respective stocks, there was nothing of significance that appealed to us. When it comes to consumer brands like Carter Inc. (CRI), Mattel Inc.’s (MTL) Fisher-Price, or Newell Brands Inc.’s (NWL) Graco, we were not particularly impressed with any of these brand’s stock. Most other popular brands parents choose for their little ones are privately owned companies. For example, popular brands like; Doona, Nuna, Nanit, Baby Brezza, ErgoBaby, and Dr. Brown’s among others.
Automobiles
I come from a family of five children. My parents both had his and hers Chevy Suburbans (a General Motors [GM] brand) which we drove in a caravan to Costco to stock up on seemingly everything. My cousin who just gave birth drives a two-door car. Everyone in the family (including her husband) is begging her to get a four-door car or SUV. Minivans have gone out of style; manufacturers are offering fewer four-door sedans, but crossovers and SUVs are in high demand. The best-performing automobile company in the past year is GM. It has even outperformed media darling Tesla (TSLA). GM dividend is about 1% but the balance sheet is shaky. There is no better time than welcoming a new baby, to consider upgrading your car to accommodate your new lifestyle. What new parents need is affordability, which GM offers. As to an investment in GM, we want to wait until the economy improves and interest rates decline.
So, while the retail and consumer non-discretionary space have good options for the baby industry, there are not enough significant brands of notable success when it comes to stock purchasing. For many, the ease of purchasing products through retail stores and value stores is all parents need to get through the different stages of life.
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