Beauty: A Fixing Agent For Investment Blemishes

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The cosmetics-toiletries industry, which is making money for many investors, has traditionally been a hot market. This article from the 1960s makes some interesting points that are still valid today.

The two industries have made each other objects of diversification. Supported by an established position in proprietary drugs, Bristol-Meyers, for instance, is aggressively expanding into ethical pharmaceuticals and cosmetics. Its diversification into cosmetics came primarily through its 1959 purchase of Clairol, the nation's largest maker of hair coloring. This cosmetics merchandising subsidiary accounted for about 17 and 23 percent of the company's sales and earnings respectively in 1960. On the other hand, cosmetics leaders like Chesebrough-Pond's and Shulton have increasing stakes in proprietary drugs.

Like the drug industry, the cosmetics-toiletries industry also possesses superior defensive qualities. Recession notwithstanding, industry sales have advanced in every year since 1947. Over the last decade, growth has been pronounced, increasing at a compounded rate of eight percent annually, more than double that of the economy as a whole, and comparing advantageously with other recognized growth groups such as chemicals (6.8 percent) and proprietary drugs (6.5 percent).

Contributing to this strong growth are the broadening markets via a dramatic increase in per capita consumption, shifts in the composition of the population, greater acceptance of cosmetics as necessities rather than luxuries, penetration of the relatively untapped foreign market, and the unabated increase in consumer disposable income.

One of the brightest prospects for the beauty industry is accelerated growth expected from what researchers call the changing age composition of our population in favor of the teen-through-middle-age groups, the largest consumers of cosmetics and toiletries, as well as from a more realistic correction of the outdated idea of cosmetics as frivolous nonessentials.

Growth will come from still another direction—the male segment of the population which until recent years had remained virtually untapped but which is becoming a fast-growing market as the young generation comes of shaving age and becomes more conscious of good grooming habits.

Analysts favor the leading companies such as Avon Products and Shulton because of their better competitive position in an industry where sales depend heavily on costly television and other mass-media advertising.

Avon's steady growth is the result of its unique selling methods. Their cosmetics are sold house-to-house by over 125,000 "representatives." These representatives are mostly housewives who wish to earn extra pocket money. Avon is the only cosmetics company to achieve institutional status in the securities market because of its exceptional record of sales, earnings and dividend growth, increasing some 350, 455 and 390 percent respectively over the past decade.

A leader in male-oriented cosmetics, Shulton has since 1951 achieved an outstanding record of uninterrupted sales and profit growth. Achieving the widest net profit margin in the cosmetics field is Beauty Counselors, a small company that has capitalized on the highly successful, low-cost door-to-door merchandising.

Another small but fast-growing company is Charles of the Ritz, Inc., an aggressively managed growth company that has succeeded in establishing for itself a matchless name for quality in an outstanding line of prestige cosmetic products. At its June 1961 level of 33, the stock was estimated at about 23 times this year's earnings estimates—a ratio which appears quite modest compared with a multiple of about 37 times for a group of well-regarded cosmetic issues.

As in the latter part of the previous century, the cosmetic industry continues to grow. And growth means new opportunities for the beauty-conscious investor.

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