Trend-Setting Companies Target Hip Young Consumers
Andrew Leckey

With austerity the national mindset in this iffy economy, anything hip or trendy may seem extravagant.

Everyone must be too busy clipping sale coupons and saving soap slivers to have time for such frivolity, right? To the contrary, according to some investment experts who believe that hip can be a smart investor direction.

"People don't feel flush right now so they need a reason to buy stuff," explained Marie Driscoll, retail analyst for Standard & Poor's Corp. in New York.

The ability to keep up with often-fickle trends is a worthy skill that many companies have failed miserably trying to master. Those that have done it best often command top dollar for their shares, but their likelihood of continued success could make them worth their premium price.

One retailer that consistently attracts the hippest of young people -- ranging in age from the teens to mid-20s -- is Urban Outfitters Inc., according to Driscoll. Its ever-changing merchandise, ranging from fashion and furniture to electronics, is part of a strategy to transform casual shoppers into motivated buyers. Its innovative Anthropologie and Free People brands are growing faster than its regular Urban Outfitters stores.

"You go into one of its stores and it's like a flea market or thrift market, the appeal being that you don't know what you're going to see," she explained, noting that even snowy weather didn't dampen sales. "It has an ear to both guys and girls as target customers and knows how to change to keep up with those customers."

Stock of Urban Outfitters (URBN) is up 4 percent this year following last year's dramatic 134 percent gain. It receives a consensus "buy" rating from the Wall Street analysts who track it, according to Thomson Reuters.

It is quite possible that when those young customers return home they relax by playing best-selling videogame Guitar Hero, which lets them simulate playing the guitar across a variety of rock music songs. It is from Activision Blizzard Inc., the firm that resulted from the 2008 merger of Activision and Vivendi Games.

"Cool games that hardcore gamers like are still coming from the traditional players in this space," noted Toan Tran, technology analyst with Morningstar Inc. in Chicago.

The videogame portfolio of Activision Blizzard includes Call of Duty, Tony Hawk and the role-playing game World of Warcraft. If you're behind the times on those, you'll surely recognize its Spider-Man and James Bond titles. The durability and worldwide appeal of its franchises, especially throughout Asia, positions it for future growth, Tran believes.

The stock of Activision Blizzard (ATVI) is up 5 percent this year following last year's 29 percent increase. Its consensus analyst rating is between "strong buy" and "buy."

For the modern crowd that expects the latest communication devices, Apple Inc. is hotter than BlackBerry maker Research in Motion, believes Michael Lippert, portfolio manager of Baron iOpportunity Fund (BIOPX) in New York. While outstanding for e-mail, the BlackBerry hasn't connected with younger consumers, he said.

"Apple's iPhone will gain even more market share when it moves to multiple carriers rather than just AT&T," predicted Lippert, who acknowledges BlackBerry's competency but doesn't believe the younger crowed is all that excited about it. "I feel that if you can walk into a Verizon store and get a BlackBerry or iPhone for the same price, why will anyone get anything other than an iPhone?"

Apple has remained a relevant company, said Lippert, who expects its new iPad tablet computer will also be successfully marketed by the company to the college-age crowd.

"There is no more hip company in technology than Apple," agreed Tran. "While it remains to be seen how big an impact the iPad will have on the market, I'm leaning toward the view that it will be another huge hit."

The stock of Apple (AAPL) is up 7 percent this year after last year's 147 percent increase. Its consensus analyst rating is between "strong buy" and "buy."

Lippert's $182 million Baron iOpportunity Fund is up 82 percent in value over the past 12 months and has a five-year annualized return of 8 percent. Besides Apple, another big holding is Google Inc. (GOOG).

"The YouTube service used by millions of people is one reason why Google is still hip and cool," said Lippert. "Other companies such as Facebook, Twitter and Hulu are at the epicenter of what's considered cool, but unlike Google they aren't public companies that you can invest in."

Engadget, a popular Web-based consumer electronics magazine based in Silicon Valley, is also considered hip these days, added Lippert. Not everyone may know that this weblog and podcast operation is owned by AOL Inc., now a stand-alone company after its divorce from Time Warner. Shares of AOL (AOL), up 9 percent this year, are a consensus "hold" among the analysts who track them.

Another Driscoll favorite is J. Crew Group Inc. (JCG), whose merchandise always has a fresh look and increasingly attracts shoppers from luxury designer stores, she said. Meanwhile, Tran admires Electronic Arts Inc. (ERTS) for its leadership in videogames, with Asia the growth driver. Its Rock Band game competes with Activision Blizzard's Guitar Hero.

Whether 2010 hipness leaders will continue into 2011 and beyond will be decided by their hip customers.