Most people probably don't realize that just a handful of businesses control how good you look. Only eight companies own almost 200 of the best-known beauty and personal care product brands.
For example, Estee Lauder naturally has its namesake products, but also owns the very popular M.A.C. line of cosmetics, along with Aveda and Clinique, while L'Oreal owns Garnier, Lancome, and Maybelline. And consumer products giant Procter & Gamble owns Pantene and Olay.
An investor should also consider the outlets where these products are sold, such as Sally Beauty and Bed Bath & Beyond's Harmon Face Value, not to mention just about every corner drugstore and mass-merchandise retailer. So, with so many businesses to choose from, below are the three top beauty product stocks to buy in 2019.
LVMH Moet Hennessy Louis Vuitton
Although it's best known as a luxury goods retailer, LVMH Moet Hennessy Louis Vuitton (NASDAQOTH: LVMUY) also owns Sephora, a chain of approximately 2,300 stores in 33 countries selling over 300 beauty care brands, including the Sephora brand.
It can be reasonably argued the only reason J.C. Penney is still around today fighting for its survival is because of its partnership with the beauty brand. By opening Sephora boutiques within its department stores, it helped boost store traffic, which resulted in customers exploring what else the retailer had to offer as it tried to bounce back from near financial ruin.
Sephora alone would make LVMH a worthy investment, but with beauty care brands including Guerlain, Ole Henriksen, and other names filling out the portfolio, the luxe conglomerate should be one to consider. First-half 2018 sales for LVMH's selective retail segment rose 9%, which it largely credited to Sephora, saying, "Sephora achieved sustained growth across all areas of operation. With omni-channel at the heart of its strategy, online sales advanced rapidly."
Japanese skincare specialist Shiseido (NASDAQOTH: SSDOY) has the distinction of being one of the oldest beauty product companies in the world, having been founded in 1872. It produces skin care, hair care, cosmetics, and fragrances under its own brand as well as an assortment of others that it has created or acquired over its 146-year history.
More recently it began exploring the technological side of beauty care. For example, it acquired synthetic skin developer Olivo Laboratories, which claims to have created a "breathable, flexible and nearly invisible artificial skin," as well as artificial intelligence start-up Giaran, which lets customers using either a smartphone or computer to apply and remove makeup before making a purchase. In that same vein, it bought another start-up, MatchCo, which develops software customers can use to match their skin tones on their smartphones.
It will likely use this mobile technology to push online sales to become an even larger component of its total. Shiseido CEO Masahiko Uotani expects e-commerce sales to almost double to account for 15% of sales by 2020.
Spa and beauty products retailer Ulta Beauty (NASDAQ: ULTA) has helped change how beauty-care products are sold by having teams of beauty-care specialists working in a salon setting. Over the past two decades, it has become the top national beauty-care retailer, offering more than 20,000 products from over 500 vendors at over 1,100 stores.
Its most recent earnings report caused concern among some investors because Ulta decided to slow the pace of its store openings. It has opened 100 or more stores every year since 2012, but will open fewer than 100 over the next few years. That's a smart move because it has been generating high performance out of the ones it has opened, making the need to open more less urgent. Also, where Shiseido is looking for e-commerce to represent 15% of sales in two years' time, Ulta already sees half of its sales coming from the online channel.
And now it's returned to growth, with third-quarter sales rising 8% year over year on an 8% jump in comparable sales, which was fueled by an increase in prestige cosmetics, the beauty-care specialist's biggest segment. Ulta also has acquired technology start-ups, including GlamST and QM Scientific, while partnering with a third.
The future of beauty
The key for these beauty product companies will be to integrate the software companies into their existing businesses to allow the process of virtually trying on makeup become a seamless experience that makes the purchase of products afterwards an easy transition.
Particularly as economic uncertainty lies just over the horizon, beauty-care products are something of a recession-resistant industry and these three companies are leaders in the field.
10 stocks we like better than Ulta BeautyWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Ulta Beauty wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of November 14, 2018