In this article, we discuss 12 best beauty stocks to buy now. If you want to see more stocks in this selection, check out 5 Best Beauty Stocks To Buy Now.
In times of economic downturns, the beauty industry remains resilient, as consumers still like to splurge on beauty and skincare regimen, even if it might be in moderation. In 2022, consistently high inflation has tampered with impulsive purchases of beauty and personal care products. In the 12 months to October 1, 2022, there was a 2.1% decline in the sale of face care products in the United States, although higher prices made up for the lower volume. Similarly in Europe, over one in five customers are forecasted to allocate less money to their make-up and skincare products in the near future, as per research from McKinsey.
For huge beauty companies, having a diversified range of products at multiple price points has helped deal with the economic slowdown. In better economic times, premiumization in skincare and haircare has proven to be a consumer favorite, displaying superior growth. This is why firms like Unilever, whose prestige beauty segment posted double-digit growth in the third quarter of 2022, are experimenting with premium beauty products.
Some of the best beauty stocks to consider in order to benefit from the defensive nature of the sector include The Procter & Gamble Company (NYSE:PG), Ulta Beauty, Inc. (NASDAQ:ULTA), and The Estée Lauder Companies Inc. (NYSE:EL).
Our Methodology
We selected the following beauty stocks based on growth fundamentals, positive analyst coverage, and strong market visibility. We have arranged the list according to the number of hedge fund holders in each firm, tracked by Insider Monkey as of the second quarter of 2022.
Africa Studio/Shutterstock.com
Best Beauty Stocks To Buy Now
12. L’Oréal S.A. (OTC:LRLCY)
Number of Hedge Fund Holders: 3
L’Oréal S.A. (OTC:LRLCY) is a French manufacturer and distributor of cosmetic products for women and men worldwide. The company operates through four divisions – Consumer Products, L’oréal Luxe, Professional Products, and Active Cosmetics. L’Oréal S.A. (OTC:LRLCY) provides its products under the L’Oréal Paris, Garnier, Maybelline New York, NYX Professional Makeup, Essie, Lancôme, Yves Saint Laurent Beauté, Giorgio Armani Beauty, Kiehl’s, Urban Decay, Ralph Lauren, IT Cosmetics, L’Oréal Professionnel, Kérastase, La Roche-Posay, SkinCeuticals, CeraVe, Valentino, Mugler, and Viktor&Rolf brands, among others.
On October 24, Barclays analyst Laurence Whyatt maintained an Overweight rating on L’Oréal S.A. (OTC:LRLCY) but lowered the firm’s price target on the shares to EUR 375 from EUR 416.
According to Insider Monkey’s data, 3 hedge funds were bullish on L’Oréal S.A. (OTC:LRLCY) at the end of the second quarter of 2022, with collective stakes worth $873.3 million, compared to 3 funds in the prior quarter worth $1.04 billion. Ken Fisher’s Fisher Asset Management held the biggest stake in the company, with 12.6 million shares valued at $872.2 million.
Like The Procter & Gamble Company (NYSE:PG), Ulta Beauty, Inc. (NASDAQ:ULTA), and The Estée Lauder Companies Inc. (NYSE:EL), L’Oréal S.A. (OTC:LRLCY) is one of the most prominent beauty stocks to monitor.
Here is what ClearBridge Investments International Growth ACWI ex-U.S. Strategy has to say about L’Oréal S.A. (OTC:LRLCY) in its Q4 2021 investor letter:
“Economies in Asia, meanwhile, are taking the opposite approach on stimulus, with China lowering its reserve requirement ratio for banks to support flagging growth in the world’s second largest economy. Japan’s new government passed a large stimulus bill after its economy contracted in the third quarter. Despite these actions, sentiment remains decidedly negative in these regions. We continue to see solid consumer demand in Asia, which has benefited our luxury and cosmetics holdings L’Oreal.”
11. Sally Beauty Holdings, Inc. (NYSE:SBH)
Number of Hedge Fund Holders: 18
Sally Beauty Holdings, Inc. (NYSE:SBH) is a Texas-based specialty retailer and distributor of professional beauty supplies. The company offers beauty products such as hair color, skin and nail care products, and styling tools for retail customers and salon professionals. It is one of the best beauty stocks to invest in.
On October 21, Jefferies analyst Ashley Helgans took over coverage of Sally Beauty Holdings, Inc. (NYSE:SBH) with a Hold rating and a $13 price target, down from $15. The market for beauty brands is transforming rapidly, but so far beauty has withstood the shift from goods to services “given its connection to socialization, occasions, and self-care regimens,” said the analyst. Jefferies’ data suggests high-single digit percentage year-over-year sales across mass and prestige, with pricing responsible for the majority of the increase, the analyst contended.
According to Insider Monkey’s data, 18 hedge funds held long positions in Sally Beauty Holdings, Inc. (NYSE:SBH) at the end of Q2 2022, compared to 17 funds in the prior quarter. Bernard Horn’s Polaris Capital Management is a notable position holder in the company, with 2.8 million shares worth $34 million.
10. Unilever PLC (NYSE:UL)
Number of Hedge Fund Holders: 21
Unilever PLC (NYSE:UL) is a London-based multinational fast-moving consumer goods company that operates through Beauty & Personal Care, Foods & Refreshment, and Home Care segments. The Beauty & Personal Care segment provides skin care and hair care products, deodorants, and skin cleansing products. Unilever PLC (NYSE:UL) is one of the top beauty stocks to monitor.
On November 1, investment advisory Morgan Stanley raised the price target on Unilever PLC (NYSE:UL) to $46 from $42.75 and maintained an Equal Weight rating on the shares. Analyst Pinar Ergun issued the ratings update.
According to the second quarter database of Insider Monkey, 21 hedge funds held stakes worth $813.3 million in Unilever PLC (NYSE:UL), compared to 23 funds in the prior quarter worth $1.10 billion. Tom Russo’s Gardner Russo & Gardner is the leading position holder in the company, with approximately 7 million shares valued at $319 million.
Here is what Mayar Capital specifically said about Unilever PLC (NYSE:UL) in its Q2 2022 investor letter:
“In 1895 the Lever brothers created a new brand of hand soap. Inspired by the growing demand for hygiene products, the Lifebuoy brand of soaps was launched to ‘make health infectious’. 128 years later the Lifebuoy brand continues as a leading soap brand – albeit without the coal tar-derived ingredients list. In fact, the market research firm Kantar ranked Lifebuoy as the global #3 most chosen FMCG brand in 2020, just below Coca-Cola (KO) and Colgate (CL) – an astonishing fact given the age of the brand. While the brand is largely absent from shelves here in the UK, it is a juggernaut in Asian markets, and is the #1 brand in India.
There are two observations about the Lifebuoy story which tell us a lot about Unilever PLC (NYSE:UL), which is currently our largest holding in the Fund.
The first is the enduring power of brands in the consumer goods market. According to Kantar’s list of most chosen brands, the top 20 global marques have an average age of 116 years, with over half being founded in the 19th century. Fashions come and go, but there is something special about low-cost consumable goods that advantages strong, time-worn brand names…” (Click here to view full text)
9. e.l.f. Beauty, Inc. (NYSE:ELF)
Number of Hedge Fund Holders: 22
e.l.f. Beauty, Inc. (NYSE:ELF) is a California-based company that sells cosmetic and skin care products under the e.l.f. Cosmetics, e.l.f. Skin, Well People, and Keys Soulcare brands worldwide. It is one of the premier beauty stocks to consider. On November 2, the company posted a Q3 non-GAAP EPS of $0.36 and a revenue of $122.35 million, topping Wall Street estimates by $0.20 and $17.64 million, respectively. e.l.f. Beauty, Inc. (NYSE:ELF) lifted its FY23 guidance well ahead of Street estimates to factor in resilient demand, market share gains, cost savings, and product mix.
On November 3, Piper Sandler analyst Korinne Wolfmeyer raised the price target on e.l.f. Beauty, Inc. (NYSE:ELF) to $55 from $46 and kept an Overweight rating on the shares. The company posted another strong quarter that outperformed across all metrics, and raised its fiscal 2023 guidance of $30 million on the top line and $10 million on adjusted EBITDA, the analyst wrote in a research note. The elevated guidance is without a pricing increase, proving e.l.f. Beauty, Inc. (NYSE:ELF) “is the exception to the norm in terms of declining unit volume demand that we’re seeing across the beauty industry more broadly,” noted the analyst.
Among the hedge funds tracked by Insider Monkey, 22 funds were bullish on e.l.f. Beauty, Inc. (NYSE:ELF) at the end of the second quarter of 2022, compared to 20 funds in the prior quarter. Jim Simons’ Renaissance Technologies is the largest position holder in the company, with 1.18 million shares worth $36.5 million.
8. The Beauty Health Company (NASDAQ:SKIN)
Number of Hedge Fund Holders: 25
The Beauty Health Company (NASDAQ:SKIN) is a California-based company that develops, manufactures, and markets aesthetic technologies and products worldwide. It is one of the elite beauty stocks to invest in. In Q3 2022, the company reported a revenue of $88.8 million, up 30.3% on a year-over-year basis and beating market estimates by $8.12 million. The Beauty Health Company (NASDAQ:SKIN) raised its fiscal 2022 net sales guidance and now expects net sales in the range of $360 million to $365 million, up from the prior outlook of $340 million to $350 million. The consensus revenue estimate is $349.72 million.
On October 21, Jefferies analyst Ashley Helgans assumed coverage of The Beauty Health Company (NASDAQ:SKIN) with a Buy rating and an unchanged price target of $20, citing the resilience of the beauty sector.
Among the hedge funds tracked by Insider Monkey, The Beauty Health Company (NASDAQ:SKIN) was part of 25 public stock portfolios at the end of June 2022, compared to 26 in the preceding quarter. Jeremy Green’s Redmile Group is the leading position holder in the company, with 5.18 million shares worth nearly $67 million.
Here is what Baron Funds has to say about The Beauty Health Company (NASDAQ:SKIN) in its Q3 2021 investor letter:
“The Beauty Health Company is an innovative skin care and aesthetics company providing consumers the benefits of a professional medical treatment with the experience of a consumer brand. Shares outperformed in the third quarter following better-than-expected earnings results and the announcement of two new retail partnerships with Nordstrom and Ulta, where the company expects to sell an aesthetics device that customers can use in their home. We continue to be attracted to the company’s asset light, recurring revenue business model and see the company doubling its revenues organically over the next few years. We also believe that Beauty Health will boost shareholder value over time through accretive acquisitions.”
7. Coty Inc. (NYSE:COTY)
Number of Hedge Fund Holders: 29
Coty Inc. (NYSE:COTY) is a New York-based company that manufactures, markets, distributes, and sells beauty products worldwide. The company markets its products under the Burberry, Calvin Klein, Cavalli, Chloe, Davidoff, Gucci, Hugo Boss, Kylie Jenner, Lacoste, Lancaster, Marc Jacobs, Miu Miu, SKKN BY KIM, and Tiffany & Co. brands, among others. On November 8, Coty Inc. (NYSE:COTY) reported a FQ1 non-GAAP EPS of $0.11, in-line with market estimates. The revenue of $1.39 billion beat Wall Street forecasts by $10 million.
On October 24, Deutsche Bank analyst Steve Powers reiterated a Buy rating on Coty Inc. (NYSE:COTY) but trimmed the price target on the shares to $10 from $11. The analyst sees “minimal controversy” on the earnings report since Coty Inc. (NYSE:COTY) raised its fiscal Q1 guidance.
According to the second quarter database of Insider Monkey, 29 hedge funds were long Coty Inc. (NYSE:COTY), compared to 30 funds in the preceding quarter. Steve Cohen’s Point72 Asset Management is the leading position holder in the company, with 10.40 million shares worth $83.30 million.
Here is what Meridian Funds specifically said about Coty Inc. (NYSE:COTY) in its Q2 2022 investor letter:
“Similarly, Coty Inc. (NYSE:COTY) benefited from the market’s rising appetite for more defensive names during the quarter. The beauty products Coty manufactures and distributes saw steady market share gains, especially as core customers expanded their work and leisure activities outside of the home. The company also operates a broad distribution network and holds a deep intellectual property portfolio across key categories within the cosmetic and fragrance industries. Additionally, Coty is building momentum around a business transformation that’s in the early innings but has already seen success in e-commerce and direct-to-consumer gains, as well as a rising presence in China.”
6. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 46
Target Corporation (NYSE:TGT) is a general merchandise retailer in the United States that sells beauty products through its Target Beauty segment. On October 18, Jefferies analyst Corey Tarlowe upgraded Target Corporation (NYSE:TGT) to Buy from Hold with a price target of $185, up from $170. Amid a “challenging macroeconomic backdrop,” a “subdued” valuation and advancements in supply chain and inventory support a bullish call on Target Corporation (NYSE:TGT), the analyst told investors in a research note. The analyst believes the second half of 2022 risk exists but noted that 2023 will possibly bring improved margins. Target Corporation (NYSE:TGT) is better positioned than the broader retail sector currently, added the analyst.
According to Insider Monkey’s data, 46 hedge funds were bullish on Target Corporation (NYSE:TGT) at the end of Q2 2022, compared to 50 funds in the last quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the biggest stakeholder of the company, with 2.6 million shares worth $369.4 million.
Like The Procter & Gamble Company (NYSE:PG), Ulta Beauty, Inc. (NASDAQ:ULTA), and The Estée Lauder Companies Inc. (NYSE:EL), elite hedge funds are backing Target Corporation (NYSE:TGT) as a potential play in the beauty sector.
Here is what LRT Capital Management specifically said about Target Corporation (NYSE:TGT) in its Q2 2022 investor letter:
“The Target Corporation (NYSE:TGT) operates retail stores that sell a variety of merchandise ranging from necessities such as food and hygiene products to discretionary products like children’s toys and electronics. The sale of this merchandise is done primarily through physical retail locations in all 50 US states. However, Target also sells its merchandise digitally through its online website which delivers merchandise to its customers in three ways: order pickup, drive up, and “Shipt”. The Target Corporation operates a single segment through 1,926 physical stores.
Target is one of the largest US brick-and-mortar retailers and has successfully adapted to the competitive environment in the age of Amazon. As of 7/15/2022, TGT shares are down 36% for the year and down 44% since their all-time-high last year. The business is experiencing issues that are temporary in nature and we believe that the shares present an attractive opportunity at current prices. Target performed exceptionally well during the Covid-19 pandemic and its aftermath. Unfortunately, the company was recently caught flat footed, as consumer preferences shifted towards more spending on services (such as travel), at the expense of physical goods. As a result, the company found itself with an excess of inventory which will likely pressure margins in the next few quarters. Target is not alone in this predicament as many retailers such as Walmart and Best Buy have experienced similar issues over the last few months. The Covid-19 pandemic created enormous difficulties for retailers in forecasting demand and appropriate inventory levels. Clearing excess inventory will pressure margins in the short-term, and while this is a clear negative for the company, we do not believe it detracts from the long-term attractiveness of the business. Target shares are currently “on sale” due to increased uncertainty about near-term operating margins – this we believe is an opportunity.
Weak consumer sentiment, a slowing economy, recession fears, along with a list of other problems have called Target’s margins and short-term profitability into question. Until the most recent earnings calls, Target and many other retailers were seeing record margins and consumer demand. This led to oversupplying of inventory with a now weaker consumer and that is temporarily damaging the operating metrics of Target and similar retailers. Target’s margins are among the highest in the retail industry, and although it will take a hit in the coming quarters the company’s operating margin will likely return to roughly 7% in the longer term…” (Click here to read the full text)
Click to continue reading and see 5 Best Beauty Stocks To Buy Now.
Suggested articles:
Disclosure: None. 12 Best Beauty Stocks To Buy Now is originally published on Insider Monkey.