2. ULTA

Ulta Salon Cosmetics & Fragrance ( ULTA) is a second stock on Citigroup's Chen's list of stocks with holiday season upside.

"ULTA has strong growth potential given 15%-20% long-term square foot growth, a new CEO focused on driving customer awareness, increasing e-commerce from 2-3% of sales" close to the industry average of 8% or more, Chen's Oct. 24 note said.

He estimated that the company's margin could expand from 12.5% now to 15%- 16% over time. The company also has opportunity to capitalize on brand awareness, Chen wrote.

"We expect average dollar sale (ADS) to benefit from salon, prestige, and skincare mix, and also e-commerce, although traffic may be a little volatile but we expect headwinds to be offset by strong ADS and conversion," the note said. "ULTA's off-mall concept is likely better positioned than mall retailers which are seeing -1% traffic trends."

Additionally, the product concept still enjoys benefits from being the new guy on the block plus the company's new e-commerce launch that grew 72% in the second quarter as well as a fast growing loyalty club, which "will continue to draw the holiday crowds and to support a premium valuation," he said.

Ulta shares are up 30% this year. The stock closed on Monday up 0.3% to $128.07

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