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2 Top Cosmetic & Beauty Stocks to Enhance Your Portfolio

The rising awareness regarding well-being and grooming and manufacturers focusing on enhanced offerings are expected to drive the cosmetics and beauty products market’s growth. Moreover, increasing investment in digital marketing strategies and strengthening e-commerce channels should foster product demand. Given this backdrop, the fundamentally strong beauty stocks Coty (COTY) and Shiseido (SSDOY) are solid investments.

The cosmetics and beauty products market has been growing significantly in recent years with an increasing focus on personal well-being and relevant advancements such as introducing personalization and sustainable cosmetics. The shifting consumer preference towards vegan products and brands focusing on non-toxic formulas should drive growth. Furthermore, the Gen Y and Gen Z population has entered the job market and are increasingly becoming important in bolstering the industry. The cosmetic industry grew by an estimated 8% compared to the previous sales year, even amid the COVID-19 slowdown in 2021.

On top of it, the aging population and its desire to retain a youthful appearance and the rise of e-commerce have become drivers of the beauty products market. The global cosmetic products market is expected to reach $805.61 billion by 2028, registering a CAGR of 7.1% between 2022 to 2028.

Given the promising prospects of the industry, fundamentally strong beauty and cosmetics stocks Coty Inc. (COTY) and Shiseido Company, Limited (SSDOY) are solid additions to one’s portfolio.

Coty Inc. (COTY)

COTY is a worldwide manufacturer, distributor, and seller of beauty products. The company offers fragrances, skin care products, and cosmetics through department stores, e-retailers, and several duty-free shops.

On June 1, it was reported that COTY is set to launch SKKN with Kim Kardashian, a new line of high-performance skincare. The skincare line is expected to be launched on June 21, 2022, through a new direct-to-consumer website, which might benefit the company.

In the fiscal third quarter ended March 31, COTY’s net revenues improved 15.4% year-over-year to $1.19 billion. Adjusted net income and adjusted net income per common share, attributed to COTY, stood at $27 million and $0.03, up 419.2% and 200%, respectively, from the prior-year quarter.

The consensus EPS estimate for the fourth quarter (ending June 2022) indicates a 66.5% year-over-year increase. Likewise, the consensus revenue estimate of $1.15 billion for the quarter reflects an 8% year-over-year rise. Moreover, COTY has an impressive surprise earnings history, as it has topped consensus EPS estimates in three out of the trailing four quarters.

Over the past five days, the stock has gained 2.4% to close Friday’s trading session at $7.27.

COTY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

COTY has a B grade for Growth, Value, and Quality. Among the 68 stocks in the B-rated Fashion & Luxury industry, it is ranked #22. Click here to see the additional POWR Ratings for COTY (Stability, Sentiment, and Momentum).

Shiseido Company, Limited (SSDOY)

SSDOY is a Tokyo, Japan-based company that manufactures and sells cosmetics, toiletries, personal care products, barber, and beauty products. The company offers fragrances, body and hair care products, as well as skincare products.

This month, SSDOY announced that it is set to launch its skincare brand SIDEKICK, which focuses on Gen-Z-specific skin concerns. The products under the new skincare line are expected to add significantly to the company’s revenues.

On May 26, the company announced the completion of the construction of its Fukuoka Kurume Factory in Kurume City for the manufacture of medium-priced skincare products such as ELIXIR. The production facility is expected to increase SSDOY’s operative capability.

For the fiscal first quarter ended March 31, SSDOY’s comprehensive income increased 128.7% year-over-year to ¥25.37 billion ($193.81 million). Profit and EPS came in at ¥5.68 billion ($43.42 million) and ¥11.00, up considerably from their negative year-ago values.

Analysts expect SSDOY’s EPS to improve 106.1% year-over-year to $1.69 for the fiscal year ending December 2023. Street expects revenue for the same period to increase 6% from the prior year to $8.47 billion.

The stock has declined 1.9% over the past five days to close its last trading session at $42.09.

SSDOY is rated a B in Quality. Within the Consumer Goods industry, it is ranked #10 out of 61 stocks. To see additional POWR Ratings for SSDOY, click here.

COTY shares were trading at $7.25 per share on Monday afternoon, down $0.02 (-0.28%). Year-to-date, COTY has declined -30.95%, versus a -13.16% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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