Cleaner and More Beautiful Living Can Be Things of Beauty for a Portfolio

Coming out of the pandemic, a number of stock sectors have experienced a pickup in demand as businesses and consumers start to return to pre-pandemic life. As we've seen in the economic data and heard from companies, supply chain shortages as companies look to ramp up production are occurring due in part to a slower return of workers who are enjoying the benefits of pandemic relief packages. But make no mistake: Consumers are bursting at the seams to get out of the house, apartment or whatever dwelling they've been constrained to since the coronavirus pandemic began. The combination of stimulus checks and the reopening have led to a boom in consumer spending and a likely shift from repair and remodel spending to updated wardrobes and refreshing their appearance. That means the snapping up of affordable and not-so-affordable luxury apparel as well as cosmetics and fragrances. I see this as part of a spending surge for what I call my Living the Life investment theme and its intersection with my Cleaner Living investment theme. Let's break it down and discuss a few ways investors can play this. Cosmetics and Fragrances With folks dropping masks it stands to reason they would put on a fresh face and look their best as they reconnect with friends, family and co-workers. That gut thought is backed up by hard data from the likes of Nielsen , which recently shared that cosmetics sales for the four weeks ended May 22 surged 16.7% year over year and over the trailing 12-week period were up almost 25% year over year. That makes cosmetics the fasted-growing category inside the beauty products category, with fragrance sales a distant second with sales up 15.5% year over year. When Ulta Beauty ULTA reported its recent quarterly results it noted its comp-store sales increased 65.9% year over year with the relaxation of restrictions, increasing consumer confidence and a desire for newness... positively impacting consumer spending in the beauty category. Compared to the same quarter in 2019, total sales increased 11.2% and comp-store sales increased 7%. Strong categories for Ulta include skincare and fragrance; it also noted solid momentum in haircare. As the reopening continues, Ulta sees its comp-store growth in the high 40% to low 50% range for the first half of 2021 and then moderate to high single-digit percentage growth for the second half of the year. When I hear results like that it means companies poised to benefit include Estee Lauder , International Parfums , Coty , e.l.f Beauty , and of course LVMH Moet Hennessy Louis Vuitton LVMUY as well as private company Chanel and L'Oréal SA (OR:FP). Among all those, the one we own in the Stocks Under $10 Portfolio is Coty, largely because of the turnaround nature of the story but also because of it embracing aspects of my Digital Lifestyle investing theme that has it tapping into digital commerce. Coty also fits my Rise of the New Middle Class investing theme as it looks to tap into rising disposable income in Asia and China in particular. Those are nice turbo chargers to the Coty story, but another one I think investors will be hearing more about is Coty's shift to cleaner products, something that resonates with the Cleaner Living investing theme I recently touched on. Cleaner Living We are clearly seeing consumers shift toward natural and organic ingredients in their beauty products as well as ones that are free of chemical preservatives, better known as parabens. A recent survey from Nielsen found that 73% of consumers would likely make purchases based on whether there would be a reduced impact on the environment, and 41% are willing to pay more to do so by buying all-natural and organic goods. This helps explain why companies such as e.l.f are pivoting their product offering to tap into the consumer shift toward Cleaner Living. During its recent earnings conference call, e.l.f. shared its plant-powered clean beauty brand W3LL People is gaining momentum and it sees a growth year for that product line. The reason why I like Coty over e.l.f is the company's relatively new management team is leaning into clean innovation across its product line. That, paired with the other tailwinds I mentioned above, led Evercore ISI to slap a $15 price target on COTY shares, a bit higher than my $13 target and the $10.28 price target consensus.

Cleaner and More Beautiful Living Can Be Things of Beauty for a Portfolio

Here are stocks that should benefit from the desire of more consumers for beauty products and natural products.

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