You’ve probably never heard of the “lipstick indicator,” but it now flashes bright green. Here are 3 stocks to take advantage of this overlooked signal

You’ve probably never heard of the “lipstick indicator,” but it now flashes bright green. Here are 3 stocks to take advantage of this overlooked signal

While prices of everyday essentials have gone up, don’t expect Americans to cut back on their skincare routines and makeup extracts — even during a recession.

In fact, during bad economic times, consumers often spend more on small, affordable luxury items, such as cosmetics. The “lipstick index” is often credited to Leonard Lauder, one of the billionaire heirs of The Estée Lauder Companies, who pointed to rising lipstick sales during the 2001 recession.

This is a trend that may be resurfacing as the prestigious beauty and fragrance sector boomed last year. With fewer people masking, lipstick sales in October saw a 37% increase over the previous year, market research firm NPD Group told The Wall Street Journal — sales of lip products were also higher compared to pre-pandemic levels .

“In times when discretionary income is scarce and splurging on expensive non-essentials is not an option, buying lipstick can be a way out,” Natallia Bambiza, director and beauty analyst at NPD Group, wrote in a blog post.

And more than a quarter of Americans plan to spend more money on their appearance by 2023 than they did in 2022, according to a national survey from Chicago-based dermatology practice Advanced Dermatology.

While economists are predicting an impending recession, cosmetics could be a spending category that consumers aren’t willing to sacrifice — making them a unique bet for investors to take advantage of this year.

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Ulta Beauty (ULTA)

This beauty chain offers makeup, skincare, and bath products under its own house brand, along with hundreds of other brands — from prestige lines like Elizabeth Arden to more affordable cosmetics like eleven

Ulta’s third-quarter report pointed to double-digit earnings growth for skincare, fragrance and bath, haircare and makeup, with net sales increasing 17.2% to $2.3 billion.

“While it’s hard to know for sure if we’re starting to see consumers turn in, Ulta Beauty is the only beauty retailer that offers a wide range of price points, from entry-level masses to high-end luxury and everything in between. We’re positioned to accommodate any consumer shifts.” within price points in the beauty category,” CEO Dave Kimbell said in an earnings call.

Morgan Stanley’s Simeon Gutman has a “hold” rating on Ulta Beauty, with a price target of $510 – or 3% higher than what shares are trading at today.

Coty Inc. (COTY)

Not only does Coty own affordable drugstore brands like CoverGirl and Sally Hansen, it also has licensing deals with luxury lines like Hugo Boss and interests in companies like Kylie Cosmetics.

Notably, the beauty giant absorbed 41 Procter & Gamble brands for $12.5 billion in 2016.

“Beauty as a category remains resilient, poised to be a staple in consumers’ beauty routines, and a category of offerings, where the innovative products and communications we bring to market directly drive demand,” said CEO Sue Nabi in an earnings report. telephone call.

Coty reported that its like-for-like sales grew 9% in the first quarter of 2023.

Piper Sandler recently upgraded his rating for Coty from “neutral” to “overweight”, with a price target of $10. That’s a potential upside of about 7%, as shares are currently trading around $9.35.

The Estee Lauder Companies (EL)

The luxury cosmetics giant has been around for over 75 years – and has everything from anti-aging serums to long-lasting foundations. It also owns popular brands such as MAC, Clinique and Too Faced.

“Fragrance and hair care each grew double digits organically, and the makeup renaissance continued to deliver on its promise in the reopening of markets,” CEO and president Fabrizio Freda said in the Q1 2023 earnings report.

Despite the company’s net sales in the first quarter falling compared to the same period last year – in part due to COVID-19 restrictions in China – analysts remain optimistic.

Oppenheimer analysts have an “outperform” rating on Estée Lauder and recently raised the price target from $245 to $300. With shares trading around $259.51 today, that’s up about 20%.

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This article provides information only and should not be taken as advice. It comes without any kind of warranty.

You’ve probably never heard of the “lipstick indicator,” but it now flashes bright green. Here are 3 stocks to take advantage of this overlooked signal

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