In some ways, the idea of buying different stocks according to the generation you belong to might seem silly. After all, a winner on the stock market is a winner, but there are some key differences between the way generations invest.
The most important one is their time horizon. Younger investors naturally have a longer time horizon than older investors, which generally manifests itself in greater risk tolerance.
Younger investors are better off trying to find the next Amazon or Tesla because they have the time to stay in the market to reap the benefit of those investments if they pay off. On the other hand, older investors such as retirees are more likely to invest in lower-risk assets like dividend stocks or bonds that come with an income stream and are less likely to result in steep losses.
Younger investors also have another advantage, which is the freedom to make mistakes. Since Gen Zers still have a number of working years ahead of them, and their portfolios are likely small, how their investments perform is less important than earning potential. They have a good opportunity to experiment and find the investing style that's best for them.
Lastly, as Peter Lynch advised, investors should buy what they know: They will have the greatest advantage by buying companies whose products or businesses they are familiar with.
Buying what you know means different things for different generations, of course. On that note, here are two tech stocks that look like great buys for Gen Z investors.
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1. Block
Few companies are as close to the cutting edge of financial services as Block (SQ 2.32%), which owns Square; Cash App; the Afterpay buy-now-pay-later (BNPL) service; the Tidal streaming service; TBD, a decentralized platform targeting Bitcoin and DeFi; as well as other smaller businesses.
Led by Jack Dorsey, Block seems to jibe well with Gen Z sensitivities. Dorsey, for example, is a big fan of Bitcoin, and Block holds Bitcoin on its balance sheet. Gen Zers are also fond of the digital, blockchain-based currencies, cryptocurrencies are actually the most widely held asset class among Gen Z after stocks, with 54% of Gen Z owning crypto and 60% owning stocks.
There's another key overlap between Gen Z and Block as well. This generation is fond of the Cash App, Block's peer-to-peer money transfer app that competes with PayPal's Venmo.
Though PayPal is still the most popular, Cash App does better with Gen Z than it does with other generations. According to data from YPulse, 55% of Gen Z has used PayPal, with Cash App coming in second with 38% adoption. A Piper Sandler survey of teens found that Cash App was the No. 1 choice for 50% of respondents.
Lastly, there's a more important reason for Gen Zers to consider investing in Block. The company continues to deliver solid growth and is penetrating massive addressable markets across all of its businesses.
Gross profit rose 21% to $1.9 billion in its most recent quarter, and its profit margins are ramping up quickly. With interest rates expected to come down next year, Block could be a big winner as that could help grease financial services companies.
2. Lemonade
Another stock with many of the same qualities as Block that appeals to Gen Z is Lemonade (LMND 1.64%), the insurance tech that is based on artificial intelligence (AI). It has targeted Gen Z with products like renters insurance, auto insurance, and pet insurance, and plans to keep expanding its product suite.
Like Block, Lemonade is targeting a massive addressable market and plans to win market share by focusing on the youngest insurance buyers -- Gen Zers -- who prefer an app-based interface and not having to talk to anyone on the phone.
The company has had a rough time on the stock market since its 2020 initial public offering (IPO), as it's still substantially below its IPO price of $29. However the business is growing quickly and continues to gain market share thanks to Gen Z and millennials, and it just passed 2 million active customers.
In its third quarter, revenue grew 55% to $114.5 million, and adjusted gross profit nearly doubled to $24.9 million. But the company is still losing money based on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) with a loss of $40.2 million in the quarter.
Lemonade's investment in AI could give it an edge as well, though it's still unclear if that strategic bet will pay off. The stock carries lots of risk, but its valuation is reasonable: It trades at a price-to-sales ratio of around 3. Like Block, Lemonade should also benefit from falling interest rates, which tend to make unprofitable, high-growth stocks more attractive.
It will also make it easier for the company to borrow money if it needs to, and encourage consumer and business spending, which favors Lemonade.
