When consumers tighten up their spending habits, the first things to go are typically the non-essentials, maybe one less pair of jeans or one less latte per week. However, there is one niche industry that continues to do well, even though it could be considered the ultimate in discretionary items. The beauty industry, as I like to refer to it, includes products to enhance the way a person's body appears via medical treatments or over the counter products. Everything from better shampoo to breast implants will fall into this category.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

The Baby Boomer Effect
As the baby boomers begin to suffer from the natural aging process, there are many who want to slow it down, as much as possible. This may be via an anti-aging cream or injections of Botox, either way the boomers are looking to stay young for as long as possible. This trend has the companies that provide the fountain of youth not only making their customers look good, but adding to their wallets, as well.

Anti-Aging and Augmentation
Anti-aging creams that do not require surgery or injections, are big around the globe and a major player is Nu Skin Enterprises (NYSE: NUS). The company sells nutritional products under the Pharmanex brand, along with is Nu Skin personal care products. The business model is unique, in that the majority of its sales come from a network of independent contractors around the globe.

An area of future growth for Nu Skin Enterprises is outside the U.S. and in particular China, where it had 40 stores at the end of 2010. The stock has reflected such growth, as it hit a new all-time high, at the end of Oct. 2011, and is up about 67% in 2011. Even after the rally, the stock remains fairly valued with a forward P/E ratio of 17.6 and PEG ratio of 1.3. (For additional reading, check out: How To Use The P/E Ratio And PEG To Tell A Stock's Future.)

If anti-aging cream is not good enough, there is always Botox injections, that help eliminate the wrinkles under your eyes. Allergan (NYSE: AGN), the maker of Botox, as well as breast implants, has benefited from Botox going mainstream. In New York, Botox is not only for the baby boomers, but a large amount of 30-somethings are now getting injections regularly.

In the past, someone with Botox and breast implants may be viewed as an outlier, but that is no longer the case. Allergan is proof in its stock price that is up about 23% in 2010, after hitting an all-time high in October. The stock trades with a forward P/E ratio about 20 and a PEG ratio of 1.7.

Beauty Plays
If you are looking for beauty products, there is a good chance Ulta Salon Cosmetics (NASDAQ: ULTA) has what you need. With over 21,000 beauty products in over 400 stores in the U.S. it is hard to imagine they will not have what you are looking for. Along with the products, ULTA also offers full service salons located in their stores.

The stock has a higher than normal forward P/E ratio of about 32.8, however the PEG ratio is not too high at 1.7. Considering the stock is up about 98% in 2011, the valuations are still reasonable for a growth company. Similar to the first two stocks, Ulta is just off an all-time high, as well. (For additional reading, check out: Great Company Or Growing Industry?)

The Clairol and L'Oreal brands are only two products that Sally Beauty Holdings (NYSE: SBH) supplies to its customers. The company distributes beauty supplies to retailers and also has its own network of stores under the CosmoProf name.The stock is up about 32% in 2011 and is one of the most attractive names in the sector. With a forward P/E ratio of about 16 and a PEG ratio of one, SBH is a very interesting play under $20.

The Bottom Line
Overall, the four stocks mentioned have outperformed the market in both good and bad times, during 2011. When the market suffers a major sell off they will likely fall with the masses, however the lure of looking and feeling better is a factor this sector has, that could help it get through a prolonged rough economic environment.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

Tickers in this Article: NUS, ULTA, SBH, AGN

comments powered by Disqus

Trading Center