(MONEY Magazine) – Meet two powerful consumers coveted by some of the country's biggest companies: Willie Hershey, 8, pictured at left, and Elizabeth Severson, 17, photographed on page 100.

Hershey, a second-grader in Manhattan, plays basketball and Nintendo after school, eats McDonald's fries, drinks Coke, sports Nike's swoosh on nearly everything he owns and has mostly grown out of Disney videos. Severson, a high school junior in Arlington Heights, Ill., is a member of the debate team and the choral group, and edits her school paper. She wears Gap clothes, Body Shop lip gloss and Nike sneakers. Like most of her friends, she's all wired up: She trades e-mail with pals and writes a college planning column for a Website. She even sold her Beanie Baby doll over the Internet.

These two are members of what demographers have dubbed Generation Y, a group loosely consisting of the 76.5 million Americans under 20. But Richard F. Hokenson, chief economist for Donaldson Lufkin & Jenrette in New York City, has another name for them: the echo boomers. "They are the result of the 78 million baby boomers reaching child-bearing age," he says. Boom, and echo boom. Simple as that.

No matter what you call them, marketers salivate over Willie, Elizabeth and the rest of their generation because their spending power is gargantuan. Just one segment of the group, the 41.4 million kids between ages eight and 17, control or influence the spending of $120 billion a year, according to New York City research group Kurt Salmon Associates. That's nearly double the annual budget for the U.S. Army. These same eight- to 17-year-olds enjoy a personal income--from allowances, gifts and part-time jobs--of $46 billion, almost as large as Ireland's gross domestic product. Says Peter Zollo, author of Wise Up to Teens (New Strategist Publications, $34.95): "Almost all of their income is discretionary. The money they get, they spend." Even their so-called savings are typically accumulated for some larger purchase.

The companies that catch this spending wave are likely to ride it profitably well into the next millennium--and take their shareholders with them. With that in mind, we went looking for companies that are capitalizing on the echo boom. Dozens are, of course. But after canvassing some 20 Wall Street analysts for their opinions, we settled on the 10 solid investments profiled below. Not surprisingly, they are in industries like apparel, entertainment and toys. We looked for brisk earnings growth that would beat the average annual 7% gain projected for Standard & Poor's 500 companies through 1997, a distinct strategy for targeting Generation Y and a substantial portion of revenues coming from this group of young consumers. The stocks are listed within each industry in descending order of their potential total returns over the next 12 months.

APPAREL

--Gadzooks (ticker symbol: GADZ; recently traded on Nasdaq for $32; no yield). It takes lightning-fast reflexes and sharp fashion instincts to succeed at selling teen clothing, and this Dallas-based retailer has got the goods. Take the current craze over JNCO jeans, a brand with huge back pockets that sells for $48 and up. "They're so popular they're hard to find," says Stephen Kim, specialty retail apparel analyst with Smith Barney in New York City. But teens know they can find them at Gadzooks' 197 stores throughout the nation. The company, which has sales of $128.4 million, also carries hot-selling brands like Mossimo, XOXO and Airwalk and controls inventory rigorously. "They don't get caught with stuff teens don't like anymore," says Bruce Bartlett, co-manager of $2.7 billion Oppenheimer Total Return fund. Partly because Gadzooks' target market of 13- to 19-year-olds will only get bigger thanks to the population boom, Kim projects a 30% to 35% annual earnings growth rate over the next five years. His target price of $48 in 12 months means an awesome 50% return.

--Nike (NKE; NYSE, $55; 0.7%). In a nationwide survey of 2,000 teens, Teenage Research Unlimited of Northbrook, Ill. posed this question: What's the coolest brand? No. 1, feet down: Nike. Respondents said what was good enough for Michael, Tiger and the champion Brazilian soccer team was good enough for them. But ultimately they buy Nike for quality and style. The $8.7 billion Beaverton, Ore. company will spend almost $1 billion this year in marketing, much of it to this group of avid sneaker-and-apparel buyers. Demand for Nike duds following the 1996 Olympics helped fuel 50% earnings growth in fiscal 1997, but analysts are looking for a more sustainable 20% annual growth rate over the next five years. Indeed, the company announced that sales in this fiscal year will be only in excess of 15%, which pruned eight points off the stock price. Now Brett Barakett of Salomon Bros. calls Nike "incredibly cheap." Oppenheimer's Bartlett expects the price to be at $70 in 12 months for a 27.9% total return.

--Gap (GPS; NYSE, $34; 0.9%). This, says Smith Barney's Kim, "is a phenomenal company" whose continued growth depends in part on remaining relevant to the teen market. And with 1,700 stores across the nation--1,916 worldwide--it's hard for any mall rat to miss it. The $5.3 billion San Francisco clothier has in recent years also zeroed in on tykes and infants with Gap Kids and Baby Gap. "They're taking all of their expertise in merchandising and retailing and applying it to a very focused niche," says John D. Morris of Prudential Securities, adding that parents like the clothing too. Moms and dads go for the range of prices--you can outfit your six-month-old in a $24 denim romper and your six-year-old in rugged $38 denim overalls. Currently, 20% of Gap's operating profits come from Gap Kids and Baby Gap offshoots. Meanwhile, Old Navy, a subsidiary that carries cheaper clothing for kids, teens and adults, provides another 16%. Morris figures the company will grow at 15% annually for the next five years. Kim expects the stock to be at $41 in 12 months for a 21.5% total return.

--Intimate Brands (IBI; NYSE, $20.50; 2.5%). To teenage girls, cute underwear is a necessary component of every outfit even if it never shows. "We've got Victoria's Secret and its image-building, glamorous catalogues to thank for that," says Morris of Prudential. Not to mention its omnipresence in malls across America. Victoria's Secret is the oomph in Intimate Brands, a 1995 spin-off from The Limited; Bath & Bodyworks (beauty products) and Cacique (upscale lingerie) make up the rest of the company. The $3 billion Columbus, Ohio manufacturer has "introduced fashion into the intimate-apparel category," Morris says. And its operating margin of 15.8% is one of the highest in the industry. Analysts project 17% annual earnings growth over the next five years for Intimate Brands, which prompts Smith Barney's Kim to say the stock will be at $24 in a year. Add in an unusually high dividend for a growth company--parent The Limited, which still owns 83%, also has a history of high payouts--and that's a total return of 19.6%.

COSMETICS

--Revlon (REV; NYSE, $41; no yield). What blush-cheeked American girl doesn't love makeup? Revlon, the $2.2 billion New York City cosmetics giant, knows that full well. Its ads in teen magazines use popular models and movie stars to tout its lipsticks and eye shadows, which drugstores and discount chains carry at an allowance-friendly $6 or less. Now the company is turning up the volume on its youth pitch with a line of makeup and paste-on tattoos called Street Wear. The products come in trendy, edgy shades like "Moody," a smoky blue, and "Grass Stain"--the color of, well, grass stains. Revlon will push Street Wear in freestanding displays at 1,000 Wal-Mart stores this summer, and analysts look for it to boost sales 5% to 10%. Amy Low of Goldman Sachs estimates that 1997 earnings of $1.20 a share will jump 67% to $2 in 1998, and analyst Holly Becker at Smith Barney looks for 23% annual earnings growth over the next five years. That's why she thinks the stock price will rise 9.8% to $45 in a year.

ENTERTAINMENT

--Electronic Arts (ERTS; Nasdaq, $32.25; no yield). Households with kids and teens are usually households with computers, and households with computers are usually households with lots of video games. That's the chain of causality that makes $625 million Electronic Arts of San Mateo, Calif. a market leader in entertainment software. Robert Peterson of Piper Jaffray in Minneapolis notes the company is the champ of the highly lucrative sports-games universe with titles like John Madden Football, NHL Hockey, PGA Tour Golf and NBA Live. These and 114 other products have been developed for Sega, Nintendo, Sony, PC and Macintosh platforms. A slowdown in PC sales plus delays in getting some hotly anticipated software titles to market is causing sales to pull back at all consumer software companies, including EA. But, says Peter Rogers of Bear Stearns, "It delivered its products mostly on time and always on the right platforms. It is achieving its earnings targets." He expects profits to grow 30% annually for the next three years--mainly on the strength of aggressive new product introductions and reviving computer sales--pushing the stock to $45 in 12 months for a 39.5% return.

--Disney (DIS; NYSE, $82.75; 0.5%). It's not just that American kids love Mickey, but kids around the world love him too. That's why international sales already account for 19% of Disney's $21.2 billion revenues, says Jill Krutick of Smith Barney. Analyst Melissa Cook of Prudential expects that proportion to grow significantly as Disney continues to expand in emerging Eastern European, Latin American and Asian nations. Meanwhile, Krutick expects Disney's theme parks, animated movies and toys to produce overall earnings growth of 18% annually in the next five years. Disney's price/earnings ratio of 26 may make the stock seem pricey in light of sharply declining ratings at ABC, which, along with ESPN and the Disney channel, accounts for 29% of revenues. But Cook called ABC's troubles a "short-term hiccup," and other analysts agree. The Burbank, Calif. company is "one of the most powerful brands ever created," says Erik Gustafson, manager of the $380 million Stein Roe Young Investors Fund. "Kids feel safe and warm in the house of the mouse, and they want to run up and hug him." His target price for the stock is $100 in 12 months for a total return of 21.3%.

PUBLISHING

--Harcourt General (H; NYSE, $47; 1.5%). As the number of school-age kids swells, the leading suppliers of elementary and high school textbooks will profit nicely. That's one reason why prospects look sunny for Harcourt General: A third of its earnings come from its Harcourt Brace subsidiary, the publisher of professional journals and textbooks. The $3.4 billion Chestnut Hill, Mass. company bid successfully for National Education Corp., which Rudolf Hokanson of Deutsche Morgan Grenfell in New York City calls "a good fit." NEC, for which Harcourt will pay $800 million, made $292 million in fiscal 1997 operating vocational and technical schools and publishing texts for the elementary, secondary and adult education markets. Martin Romm of Credit Suisse First Boston figures the combination of traditional publishing, interactive media and online educational services, plus 53% ownership of retailers Bergdorf Goodman and Neiman Marcus, will produce a five-year annual earnings growth rate of 12%. Hokanson expects the stock to hit $53 in a year, for a total return of 14.3%.

TOYS

--Equity Marketing (EMAK; Nasdaq, $18.50; no yield). Ever wonder where those toys your kid collects at Burger King come from? No, not from spontaneous generation, but from this $113 million Beverly Hills company. Equity Marketing does it all, "from concept to getting it into kids' hands," says Gary Jacobson of Jefferies & Co. in New York City. Though Burger King is its biggest customer--current hit giveways include figurines from Jurassic Park: The Lost World--Coca-Cola, Disney, Dreamworks SKG, Kellogg and Kodak have also joined the client roster. But the fastest-growing side of Equity Marketing's business is selling its own line of stuffed animals tied to TV shows like Wishbone, Land Before Time and Looney Toons cartoons. Says Sean McGowan of Gerard Klauer Mattison in New York City: "These toys aren't Tickle Me Elmo or Beanie Babies, but they are significant. My son loves them." Flush with cash and free of debt, Equity Marketing has analysts forecasting at least 20% annual earnings growth over the next five years. Jacobson reckons the stock will be at $28 in 12 months, up 51.4%. A word of warning, though: The total value of the company's outstanding shares is a tiny $106 million, which may make the stock more prone to wide price swings than bigger stocks are.

--Mattel (MAT; NYSE, $29; 0.8%). The Goliath of the toy industry continues to rule the playroom with Barbie, Hot Wheels, Fisher-Price and Disney products. Smith Barney's Krutick pegs earnings growth at 15% annually for the coming five years on the basis of strong international growth and more emphasis on marketing the top-selling toys. And Victor Mandel of Goldman Sachs is even more optimistic; he is looking for a 20% growth rate for 1998 as the $4.9 billion company absorbs its recent acquisition, Tyco, and consolidates costs. Mandel predicts that the El Segundo, Calif. company will get out of making sports equipment and focus its marketing and production on core products like Barbie, whom Gustafson of Stein Roe calls "a franchise unto herself." Mandel expects this strategy to boost the stock to $38 for a 31.8% total return in 12 months. That kind of performance is not kid stuff.