In this article, we delve into the top 12 beauty stocks to consider for your investment portfolio right now. For an extended selection, explore our article on 5 Best Beauty Stocks To Buy Now.
Even during economic downturns, the beauty industry displays remarkable resilience, as consumers continue to indulge in their beauty and skincare routines, albeit with some moderation. The year 2022 saw significant inflation impact, leading to a decline in impulsive purchases of beauty and personal care items. Specifically, from October 1, 2021, to 2022, sales of face care products in the United States dropped by 2.1%, even as rising prices compensated for the decreased volume. Similarly, in Europe, research from McKinsey predicts that over 20% of customers are likely to cut back on spending for makeup and skincare products in the near future.
For large beauty corporations, maintaining a diverse product range across various price points has proven to be crucial for navigating economic challenges. In favorable economic conditions, the trend of premiumization in skincare and haircare has shown strong consumer appeal and notable growth. For example, Unilever’s prestige beauty segment achieved double-digit growth in Q3 of 2022, prompting the company to explore more premium beauty offerings.
If you’re looking to capitalize on the defensive characteristics of the beauty sector, key players such as The Procter & Gamble Company (NYSE:PG), Ulta Beauty, Inc. (NASDAQ:ULTA), and The Estée Lauder Companies Inc. (NYSE:EL) are worth your attention.
Our Research Methodology
Our selection of beauty stocks is based on various factors including growth fundamentals, positive analyst recommendations, and strong visibility within the market. The list is organized by the number of hedge fund holders in each company, as tracked by Insider Monkey, as of the second quarter of 2022.
Africa Studio/Shutterstock.com
Explore the Top Beauty Stocks to Invest In Right Now
12. L’Oréal S.A. (OTC:LRLCY)
Number of Hedge Fund Holders: 3
L’Oréal S.A. (OTC:LRLCY) stands as a global leader in the cosmetic industry, offering a wide array of products for both men and women. The company operates through four key divisions: Consumer Products, L’Oréal Luxe, Professional Products, and Active Cosmetics. L’Oréal’s extensive portfolio features renowned brands such as 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, among others.
On October 24, Barclays analyst Laurence Whyatt reaffirmed an Overweight rating for L’Oréal S.A. (OTC:LRLCY), while adjusting the price target for the shares down to EUR 375 from EUR 416.
According to data from Insider Monkey, 3 hedge funds were optimistic about L’Oréal S.A. (OTC:LRLCY) at the close of Q2 2022, with total stakes amounting to $873.3 million, a decrease from the 3 funds holding $1.04 billion in the previous quarter. Ken Fisher’s Fisher Asset Management held the largest stake in the company, boasting 12.6 million shares valued at $872.2 million.
Similar to 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) remains one of the most important beauty stocks to keep an eye on.
Here is an excerpt from ClearBridge Investments International Growth ACWI ex-U.S. Strategy’s Q4 2021 investor letter concerning L’Oréal S.A. (OTC:LRLCY):
“Economies in Asia are taking a divergent approach to stimulus, with China lowering its reserve requirement ratio for banks to bolster growth in the world’s second-largest economy. In Japan, the new government passed a significant stimulus bill after its economy contracted in Q3. Despite these measures, sentiment in these regions remains largely negative. Nevertheless, we continue to observe robust consumer demand in Asia, benefiting our luxury and cosmetics holdings, particularly L’Oréal.”
11. Sally Beauty Holdings, Inc. (NYSE:SBH)
<i>Number of Hedge Fund Holders: 18</i>
Sally Beauty Holdings, Inc. (NYSE:SBH) operates as a specialty retailer and distributor of professional beauty supplies based in Texas. The company specializes in offering a variety of beauty products including hair color, skin and nail care items, and styling tools for both retail customers and salon professionals, making it one of the most compelling beauty stocks to consider for investment.
On October 21, Jefferies analyst Ashley Helgans initiated coverage of Sally Beauty Holdings, Inc. (NYSE:SBH) with a Hold rating, setting a price target of $13, down from $15. The beauty brand landscape is rapidly evolving, yet beauty continues to resist the shift from products to services due to its intrinsic connection to socialization, special occasions, and personal wellness routines, according to the analyst. Jefferies’ research indicates that both mass and prestige beauty segments are seeing high-single-digit yearly sales growth, with pricing being the primary driver for this increase.
Insider Monkey’s records show that 18 hedge funds held long positions in Sally Beauty Holdings, Inc. (NYSE:SBH) at the end of Q2 2022, a slight rise from 17 funds in the previous quarter. Bernard Horn’s Polaris Capital Management is a notable stakeholder, holding 2.8 million shares valued at $34 million.
10. Unilever PLC (NYSE:UL)
Number of Hedge Fund Holders: 21
Unilever PLC (NYSE:UL) is a multinational fast-moving consumer goods company headquartered in London, operating across various segments including Beauty & Personal Care, Foods & Refreshment, and Home Care. The Beauty & Personal Care segment specializes in providing a range of skin care and hair care products, deodorants, and cleansing items, making Unilever PLC (NYSE:UL) one of the leading beauty stocks to watch closely.
On November 1, Morgan Stanley lifted the price target for Unilever PLC (NYSE:UL) to $46 from $42.75 and maintained an Equal Weight rating for the shares. Analyst Pinar Ergun provided the updated ratings.
As per Insider Monkey’s second quarter data, 21 hedge funds held stakes in Unilever PLC (NYSE:UL) worth $813.3 million, compared to 23 funds in the previous quarter with holdings totaling $1.10 billion. Tom Russo’s Gardner Russo & Gardner is recognized as the leading position holder, with approximately 7 million shares valued at $319 million.
Mayar Capital’s Q2 2022 investor letter highlights Unilever PLC (NYSE:UL) with the following insights:
“In 1895, the Lever brothers launched a pioneering brand of hand soap in response to the increasing demand for hygiene products. The Lifebuoy soap brand aimed to ‘make health infectious’. Fast forward 128 years, Lifebuoy remains a leading soap brand, albeit without the coal tar-derived ingredients of the past. Remarkably, market research firm Kantar ranked Lifebuoy as the global #3 most chosen FMCG brand in 2020, trailing only Coca-Cola (KO) and Colgate (CL). Although largely absent from UK shelves, Lifebuoy holds the top position in the Indian market.”
Two key observations from Lifebuoy’s journey highlight essential aspects of Unilever PLC (NYSE:UL), which is currently our largest holding in the Fund.
The first is the lasting power of brands in the consumer goods sector. According to Kantar, the top 20 global brands have an average age of 116 years, with over half established in the 19th century. Trends may come and go, but enduring and affordable consumer goods often benefit from established, time-tested 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 known for its diverse range of cosmetic and skin care offerings under the e.l.f. Cosmetics, e.l.f. Skin, Well People, and Keys Soulcare brands. This makes it one of the premier beauty stocks to consider. On November 2, e.l.f. Beauty, Inc. (NYSE:ELF) announced a Q3 non-GAAP EPS of $0.36 alongside revenue of $122.35 million, surpassing Wall Street expectations by $0.20 and $17.64 million respectively. The company also raised its FY23 guidance significantly ahead of market predictions in light of strong demand, market share gains, cost efficiencies, and an improved product mix.
On November 3, Piper Sandler analyst Korinne Wolfmeyer increased the price target for e.l.f. Beauty, Inc. (NYSE:ELF) to $55 from $46, maintaining an Overweight rating for the shares. The company has demonstrated an exceptional performance in its recent quarter, exceeding expectations across all metrics, and has upgraded its fiscal 2023 guidance by $30 million on the top line and $10 million on adjusted EBITDA. Notably, this positive outlook is achieved without increasing prices, marking e.l.f. Beauty, Inc. (NYSE:ELF) as an exception amid the declining unit volume demand observed across the wider beauty industry, the analyst pointed out.
According to Insider Monkey, 22 hedge funds were optimistic about e.l.f. Beauty, Inc. (NYSE:ELF) at the end of Q2 2022, an increase from 20 funds in the previous quarter. The largest position holder among hedge funds is Jim Simons’ Renaissance Technologies, holding 1.18 million shares valued at $36.5 million.
8. The Beauty Health Company (NASDAQ:SKIN)
Number of Hedge Fund Holders: 25
Based in California, The Beauty Health Company (NASDAQ:SKIN) specializes in developing, manufacturing, and marketing innovative aesthetic technologies and products on a global scale. It ranks as one of the elite beauty stocks to invest in. In Q3 2022, the company reported a revenue of $88.8 million, reflecting a 30.3% year-over-year increase and exceeding market forecasts by $8.12 million. The Beauty Health Company (NASDAQ:SKIN) has since raised its fiscal 2022 net sales guidance, now anticipating net sales between $360 million and $365 million, up from a previous estimate of $340 million to $350 million. The consensus revenue estimate is $349.72 million.
On October 21, Jefferies analyst Ashley Helgans initiated coverage of The Beauty Health Company (NASDAQ:SKIN) with a Buy rating, maintaining a price target of $20, reflecting confidence in the beauty sector’s resilience.
As per Insider Monkey, The Beauty Health Company (NASDAQ:SKIN) was included in 25 hedge fund portfolios at the end of June 2022, which is a slight decline from 26 in the previous quarter. Jeremy Green’s Redmile Group is the largest position holder in the company, owning 5.18 million shares valued at nearly $67 million.
Baron Funds’ Q3 2021 investor letter provided insights on The Beauty Health Company (NASDAQ:SKIN):
“The Beauty Health Company stands out as an innovative player in the skincare and aesthetics sector, delivering the advantages of professional medical treatments within the framework of a consumer brand. Shares performed well in the third quarter following impressive earnings results and the announcement of two new retail partnerships with Nordstrom and Ulta, where the company plans to introduce an at-home aesthetics device for consumers. We see significant potential in the company’s asset-light, recurring revenue business model, with expectations for organic revenue doubling over the coming years. Additionally, we believe that Beauty Health will enhance shareholder value through strategic acquisitions.”
7. Coty Inc. (NYSE:COTY)
Number of Hedge Fund Holders: 29
Coty Inc. (NYSE:COTY) is a New York-based company involved in the manufacturing, marketing, distribution, and sale of beauty products worldwide. The company’s extensive portfolio includes products marketed under prestigious brands such as Burberry, Calvin Klein, Cavalli, Chloe, Davidoff, Gucci, Hugo Boss, Kylie Jenner, Lacoste, Lancaster, Marc Jacobs, Miu Miu, SKKN BY KIM, and Tiffany & Co., among others. On November 8, Coty Inc. (NYSE:COTY) announced a FQ1 non-GAAP EPS of $0.11, aligning with market expectations, while its revenue of $1.39 billion surpassed Wall Street projections by $10 million.
On October 24, Deutsche Bank analyst Steve Powers reaffirmed a Buy rating for Coty Inc. (NYSE:COTY), although he revised the price target down to $10 from $11. The analyst noted that the earnings report generated minimal controversy, as Coty Inc. (NYSE:COTY) raised its fiscal Q1 guidance.
According to Insider Monkey’s second quarter data, 29 hedge funds were long on Coty Inc. (NYSE:COTY), a slight decrease from the 30 funds in the preceding quarter. Steve Cohen’s Point72 Asset Management is the largest stakeholder, with 10.40 million shares valued at $83.30 million.
Insights from Meridian Funds’ Q2 2022 investor letter emphasized Coty Inc. (NYSE:COTY) with the following remarks:
“Coty Inc. (NYSE:COTY) has benefitted from the increasing market demand for more defensive stocks this quarter. The beauty products manufactured and distributed by Coty have gained steady market share, particularly as core customers expanded their work and leisure activities outside their homes. The company boasts a comprehensive distribution network and a robust intellectual property portfolio across key categories in the cosmetics and fragrance sectors. Furthermore, Coty is gaining traction with its ongoing business transformation, which has already seen success in e-commerce and direct-to-consumer channels, as well as a growing presence in China.”
6. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 46
Target Corporation (NYSE:TGT) is a major general merchandise retailer in the United States, selling a variety of 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 revised price target of $185, up from $170. Despite facing a “challenging macroeconomic backdrop,” the analyst highlighted Target’s attractive valuation and advancements in supply chain and inventory management as reasons for this bullish outlook. The potential risks in the second half of 2022 are acknowledged, but improvements in margins are anticipated for 2023, suggesting that Target Corporation (NYSE:TGT) is well-positioned compared to the broader retail sector.
According to Insider Monkey, 46 hedge funds were optimistic about Target Corporation (NYSE:TGT) at the end of Q2 2022, down from 50 funds in the previous quarter. Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke, and John Campbell, holds the largest stake in the company, owning 2.6 million shares valued at $369.4 million.
Similar to The Procter & Gamble Company (NYSE:PG), Ulta Beauty, Inc. (NASDAQ:ULTA), and The Estée Lauder Companies Inc. (NYSE:EL), elite hedge funds see Target Corporation (NYSE:TGT) as a promising investment in the beauty sector.
Insights from LRT Capital Management’s Q2 2022 investor letter concerning Target Corporation (NYSE:TGT) include the following:
“Target Corporation (NYSE:TGT) operates retail outlets offering a range of products from essential items like food and hygiene products to discretionary goods such as children’s toys and electronics. This merchandise is primarily sold through physical stores across all 50 U.S. states, complemented by digital sales through its website with various delivery options: order pickup, drive-up, and “Shipt.” Currently, Target operates a single segment through 1,926 locations.
As one of the largest brick-and-mortar retailers in the U.S., Target has successfully navigated a competitive landscape in the era of Amazon. As of July 15, 2022, TGT shares have decreased by 36% for the year and 44% from their peak last year. While the business faces temporary challenges, the shares present an attractive investment opportunity at present. Target performed remarkably during the Covid-19 pandemic, but recent shifts in consumer preferences towards services (like travel) have impacted sales of physical goods. This resulted in excess inventory that may pressure margins in the upcoming quarters. Many retailers, including Walmart and Best Buy, are experiencing similar issues. The pandemic has made it difficult for retailers to accurately forecast demand and set appropriate inventory levels. While this excess inventory may pressure margins in the short term, it does not diminish the long-term investment appeal of the business. Currently, Target shares are undervalued due to increased uncertainty surrounding near-term operating margins, which we view as a compelling opportunity.
Concerns about weak consumer sentiment, economic slowdown, and recession fears have raised questions regarding Target’s margins and short-term profitability. Historically, Target has enjoyed record margins and strong consumer demand, but the oversupply of inventory, coupled with a weaker consumer market, is temporarily affecting its operating metrics. Despite this challenge, Target’s margins remain among the highest in the retail sector, and while it may face short-term declines, we anticipate a return to approximately 7% operating margin in the longer term…” (Click here to read the full text)
Click to continue reading and discover 5 Best Beauty Stocks To Buy Now.
Suggested articles:
Disclosure: None. 12 Best Beauty Stocks To Buy Now was originally published on Insider Monkey.