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Estee Lauder Companies Inc (EL), Avon Products, Inc. (AVP): The Search for Immortality – Spawning Great Investments in Any Era

There are few market drivers as strong as the desire to remain “forever young,” and many smart companies in the personal care and health care space are capitalizing on this.  Now that the infamous Baby Boomers are greying, or at least starting to pull out the first grey hairs with tweezers, this trend has hit a fever pitch.

A post detailing all of the stocks riding on making Aunt Mable act, look and feel less than 55 years young would stretch the length of Tolstoy’s “War and Peace,” so this Foolish blogger has chosen to focus on the biggest of the major anti-aging booms: youthful appearance.

Women are the primary force behind the anti-aging cosmetics bonanza, and because of this stocks like Estee Lauder Companies Inc (NYSE:EL), Avon Products, Inc. (NYSE:AVP), and L’Oreal stand to win big. The last time I bought a women’s magazine, I had to flip at least twelve pages full of nothing but ads before I even got to the first article, which means women everywhere are being bombarded with the messages that they can have wrinkle-free skin, glowing eyes, a great body, and an overall youthful appearance at any age.

One stock truly worthy of watching is good old Avon Products, Inc. (NYSE:AVP). I have fond memories of the “Avon Lady” ringing our doorbell when I was a young teen, and sitting with her and my mother while she sprayed us with wonderful smelling fragrances and rubbed lipstick samples on the back of our wrists to find just the perfect shade.
Today, Avon represents significant cost savings over drug store brands for the average consumer, and the quality outperforms most drug store brands while just falling shy of the top shelf brands like Estee Lauder Companies Inc (NYSE:EL) and Clinique. In addition, the anti-aging products they offer are very popular, and they appear to work (yes, I speak from personal experience).

I like Avon Products, Inc. (NYSE:AVP) as an investment because, as a multi-level marketing company, it has dramatically reduced SG&A (Sales, General and Administrative) overhead costs, which it can then turn into consumer savings.  Avon stockholders have suffered greatly in the past several years due to many management missteps resulting in higher than acceptable debt levels.   Indeed, the stock’s CAPS rating is only 2. But a new CEO may be able to turn this around, and the recent results are promising. Avon Products, Inc. (NYSE:AVP) began trading ex-dividend on May 10 of this year, and the dividend is projected to be around 1%; the same as giant Estee Lauder Companies Inc (NYSE:EL). Looking at the debt picture, the Quick Ratio of 0.80 and Current Ratio of 1.5 are quite respectable, and bear witness that a turnaround is underway. Gross margins are also healthy, at 63.50% – strong, but still less that Estee Lauder Companies Inc (NYSE:EL)’s laudable and recently announced 80.7% (think of that the next time you buy the highly touted and high priced Performing Extract).

And even outside of the wildly popular anti-aging products, Avon Products, Inc. (NYSE:AVP)’s products are solid and of consistent quality. Millions of women (myself included) trust Avon for their jewelry, nail polish, basic cosmetics, and toiletries. Skin-so-soft has been known for many years to be a more effective insect repellent than products directly marketed as insect repellents.

A great way to buy into Avon but limit exposure if you are nervous about past performance is to purchase shares of Exchange Traded Fund Guggenheim S&P 500 Equal Weight Consumer Staples (RHS), which is 3.18% Avon holdings. This fund is showing good performance stats so far:

Quarter End Performance as of 3/31/13

YTD
(%)
1 Month
(%)
3 Month
(%)
6 Month
(%)
1 Year
(%)
3 Year
(%)
5 Year
(%)
10 Year
(%)
SI
(%)
NAV 17.16 6.08 17.16 18.70 25.17 16.95 12.76 N/A 10.73
Market Price 17.27 5.63 17.27 18.55 25.08 16.96 12.79 N/A 10.74

While Avon Products, Inc. (NYSE:AVP) caters to middle America, Mom and Pop, and apple pie, giant Estee Lauder Companies Inc (NYSE:EL) caters to the high end professional female or well-heeled society maven.  However, this company only has one CAPS star right now, so the Foolish audience appears to be shying away from it.  Why? Just like Avon, Estee Lauder has a solid, loyal clientele and products that are known to work. Earnings results announced recently showed strong earnings and raised revenue guidance for the next upcoming quarter. But amidst that news, execs warned that growth was not as strong as was expected, and Korean and Southern European markets are sluggish. The reason given for the slowing of growth is increased competition (could women everywhere be starting to realize that Avon Products, Inc. (NYSE:AVP)’s products work just as well?). Also, Duty Free Americas is now suing Estee Lauder, as it claims the cosmetic’s giant actively tried to prevent its products from being sold in airport duty free shops.  Top all these concerns with an over $70 per share price tag (the stock rose over 9% last year), and this Fool says to stay clear until the coming correction is over with and the dust settles. But when that happens, jump in and grab shares, as this is a time honored brand that will continue to earn through its very solid line of anti-aging facial products.

Another good one to keep an eye on is L’Oreal, the king of the drug store brand cosmetics and also a strong, reputable company with a good brand and great products.  Women are loving their new BB cream, a cream that reduces the appearance of big pores, fine lines, under-eye circles, and all the banes of our existence whether we are young or old. At a 3, this stock has a respectable CAPS rating, and according to all the Foolish commentary, it is because even though the market took a dive, the company’s fundamentals stayed strong.  EPS is estimated to be $1.35, and the stock is currently trading at $34.55 per share with a market cap of $104.2 billion.  Headquartered in France, L’Oreal is the world’s largest cosmetics company and is beloved of women everywhere. L’Oreal has lipstick with strong staying power, mascaras that don’t flake, and face powder that is formulated not to fall into the creases left by wrinkles and make a woman look like an aging clown. The company is strongly focused to tackling the Chinese market too, they are forecasting 250 million new Chinese customers in the next 10-15 years.  This means they have an identified growth path and are plunging forward, full speed ahead.

No matter what the economy is doing, women want to look younger. When things are good, they want to look younger to celebrate.  When things are bad, cosmetics become a “feel-good” purchase. Companies that bring products to market that make us look better will always be a good investment.

The article The Search for Immortality – Spawning Great Investments in Any Era originally appeared on Fool.com and is written by Brenda Johnson.

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