Aging Boomers Boost Beauty Stocks

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Debra Borchardt will appear on NBR Monday (check local listings) to explain why cosmetics stocks are looking attractive.

NEW YORK (TheStreet) -- The economy may be recovering slowly, but women are still spending money on cosmetics and rising sales mean rising stock prices.

Even during the recession, the U.S. cosmetic business generated more than $13 billion in revenue last year according to Ibis World Reports. This is also supported by the Brand Keys "Loyalty Leaders" report that found that consumers stick with their favorite cosmetic brands even in a bad economy. As the economy continues to rebound, cosmetic shopping is expected to continue to pick up. IBIS expects the industry revenue to grow at an average rate of 4% to over $15 billion.

Plus, the recession has been harder on men than women. Two thirds of the jobs lost belonged to men, with women becoming the breadwinners of the family. Call it the "man-cession." Economists also predict that by 2024, the average woman will make more money than the average man. But even as men have lost jobs, male cosmetic products have tripled in sales over the last decade. This demand for male beauty products has become a new area of growth for manufacturers and retailers.

Based on government retail sales data, sales for health and personal care stores were up 5% year-over-year in October. Several of the cosmetic stocks have already rebounded from financial-crisis lows, but are poised to continue moving higher. Commodity costs have not affected the companies dramatically and international sales continue to deliver huge growth. Other than Avon (AVP), the premier cosmetic stocks have amazing performance returns for the past six months and that should continue as the recovery gains traction.

Ulta Salon (ULTA) is a retailer providing beauty products and salon services at the same location. The company has fewer than 400 stores and the potential to expand to 1,000.

Raymond James analyst Samantha Panella rates the stock at outperform with a $78 target price. She believes the company is less sensitive to a promotional environment or seasonal affects. To her it's a square footage story -- growing 16% year over year. The company also has no debt and is cash flow positive.

Panella is planning for 24% year-over-year net income growth even though the company's own target is 25-30%. The company just reported its third-quarter net sales which were up 21.8%, with store sales up 9.6% and gross profit up 36%. Ulta has forecast store sales in the fourth quarter to grow 6-8%. The stock is up 110% for the past year.

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