We recently compiled a list of the 10 Best Beauty Stocks To Buy According to Short Sellers. In this article, we are going to take a look at where Kenvue Inc. (NYSE:KVUE) stands against the other beauty stocks.
The US beauty market, which is seeing major shifts in distribution and customer interaction, continues to be a key area of interest for stakeholders. Beautymatter CEO Kelly Kovack underlined that consumer-driven channels have replaced traditional distribution strategies, compelling companies to engage with customers wherever and whenever they’re most comfortable.
According to a report, the US beauty market is expected to grow to $114 billion by 2027. On the other hand, the prestige channel saw its third straight year of double-digit growth in 2023, rising by 14% to $31.7 billion, outpacing the mainstream market across make-up, skincare, hair, and fragrance, according to the February 2024 CEW conducted annual “Global Trend Report” virtual event. Luxury brands represent the fastest-growing segment, with sales surpassing $16 billion, although being smaller at 11% of the market.
Bigelow Trading’s Daina Nadler emphasized the value of multichannel distribution plans that are customized to a wide range of consumer buying preferences. According to John Cafarelli, CEO of Beautymatter, 87% of US beauty lovers prefer in-store shopping, and 80% of them frequent stores that specialize in beauty products. In-store shopping continues to be popular. In order to increase traffic and loyalty, Space NK’s Noah Rosenblatt and H-E-B’s Jeanne Tamayo stressed the significance of creating compelling retail spaces and solid brand-consumer relationships.
In contrast, although offline retail in China is declining by 4%, e-commerce and social commerce, particularly Douyin, are growing at 9% and 57%, respectively, according to Nielsen IQ. China is a resilient beauty market, and despite all of the difficulties following the pandemic, it remains the world’s second-largest beauty market, posing numerous challenges for international suppliers notes Vice President of Nielsen IQ Gautam Seth. He also points out that local companies are more successful because they employ local ingredients and have a strong cultural connection. Industry giants like Jina Lee of Urang and Kim Da Jeong of Lotte Department Store have stressed the importance of consumer knowledge about ingredients and product efficacy.
The emphasis on diversity is also influencing the global beauty market, although many individuals continue to feel underrepresented in health and beauty advertisements as per Circana. Expectations from consumers about varied representation in terms of gender, color, age, ability, body size, and sexual orientation are at an all-time high. A general market and a multicultural market will not differ by 2044 due to the majority-minority population in the United States. According to a study by SeeMe Index and Circana, brands that are certified inclusive grow 1.5 times faster than brands that are not. Additionally, the likelihood of seeing individuals over 55 in these brands’ advertisements who equally represent straight and homosexual partnerships is 2.5 times higher than that of less inclusive brands, which are 12 times more likely to just feature straight relationships.
Looking ahead, the global beauty market is expected to generate retail sales of over $580 billion by 2027, with an annual growth rate of 6% per report.
One area gaining attention and stimulating beauty business is the growing consumer interest in wellness within beauty. According to a survey on wellness trends in 2024, 82% of US consumers, 87% of Chinese consumers, and 73% of British consumers now rank wellness as a top or important priority in their daily lives. The Goop, one of the “Most Successful Celebrity Beauty Companies in the World,” philosophy is that “beauty is wellness and wellness is beauty.” Beauty firms are entering this space. A massive beauty brand and the Stanford Institute on Longevity have teamed up to develop a new age-reversal technology-powered product.
Methodology:
We sifted through holdings of beauty ETFs and online rankings to form an initial list of 20 beauty stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A pharmacist at a local store, stocking shelves with products from the consumer health company.
Kenvue Inc. (NYSE:KVUE)
% of shares shorted: 2.34%
Kenvue Inc. (NYSE:KVUE) is the world’s largest pure-play consumer health company by revenue, with $15 billion in annual revenue. The company, formerly the consumer division of Johnson & Johnson, spun out and went public in May 2023. Analysts anticipate that Kenvue would prioritize expanding its 15 priority brands—including Tylenol, Nicorette, Listerine, and Zyrtec—to fuel future growth, given its ability to use funds and make investments as a stand-alone company.
As with several of its wide-moat competitors, Morningstar analysts predict the company to invest about 3% of sales in R&D to introduce cutting-edge goods, particularly in the digital consumer health space. The Zyrtec AllergyCast app and the Nicorette QuickMist SmartTrack spray are two recent examples.
Many of the most well-known brands in the industry are included in its portfolio, including Johnson’s, Neutrogena, Listerine, Tylenol, and Aveeno. A number of the firm’s brands are the global leaders in their respective segments because of their tremendous brand power, despite operating in a fragmented business with fierce competition and constantly shifting customer tastes.
Oakmark Fund stated the following regarding Kenvue Inc. (NYSE:KVUE) in its first quarter 2024 investor letter:
“Kenvue Inc. (NYSE:KVUE) became the largest standalone consumer health company following its split-off from Johnson & Johnson in May 2023. The company’s highly recognizable brands, such as Neutrogena, Listerine, Tylenol and Band-Aid, have been market share leaders in their respective categories for generations. However, Kenvue’s first year as a public company was clouded by litigation and market share losses in certain categories. As a result, Kenvue now trades for just 16.5x trailing earnings, a substantial discount to the market and other consumer health and packaged goods companies. We see an opportunity for the company to improve efficiency and re-invest the cost savings into increased product development and marketing, which should help improve its growth and brand equity.”
The stock price of Kenvue increased as a result of the company’s Q2 results, which showed $4.0 billion in revenue and 1.5% organic growth, indicating a turnaround. The company’s high-intangible brands and cost-cutting measures are anticipated to provide sustained momentum in spite of macro headwinds.
The average 12-month price objective for this stock, as projected by 11 analysts, is $22.45, representing a 2.28% increase from the firm’s current price of $21.95.
Overall KVUE ranks 9th on our list of the best beauty stocks to buy according to short sellers. While we acknowledge the potential of KVUE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than KVUE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.