Every stock picker wants to find the next Apple Inc (NASDAQ:AAPL) or Amazon.com Inc (NASDAQ:AMZN) – sexy tech stocks with tremendous growth potential. But, this year, some of the most attractive stocks are the companies helping their customers feel more attractive. 

e.l.f Beauty (NYSE:ELF) and Ulta Beauty Inc (NASDAQ:ULTA) are two cosmetic and makeup companies that have strongly outperformed the market. Both stocks hit new 52-week highs on Monday, $56.92 a share and $461.57 a share, respectively.

A lot of factors have led to the strength of the makeup industry. Social norms make it more acceptable for young women, men and non-binary people to wear makeup, even in casual settings like school. Additionally, videos for makeup tutorials on YouTube and TikTok garner millions of views each week, spreading the popularity of makeup among young people.

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Another aspect to consider is makeup’s history as a recession-proof investment. Leonard Lauder, the founder of Este Lauder Companies Inc (NYSE:EL), coined the term “Lipstick Index” during the 2001 recession. The Lipstick Index refers to the phenomenon that makeup sales hold steady or even increase during recessions because things like lipsticks can offer women an affordable treat in uncertain times. 

Elf is known to be a cheaper option than more expensive makeup brands. Because of this, if anyone was going to benefit from the “lipstick index” phenomenon, it should be Elf. In fact, Elf has been strongly outperforming Este Lauder and some other more high-end cosmetic companies during the second half of 2022. 

Elf’s stock is up more than 100% throughout the last six months. Este Lauder’s is down more than 15% in that same timespan.

Unlike Elf, Ulta primarily operates as a storefront that holds many different brands, including Elf. Ulta has a deal with Target Corporation (NYSE:TGT) helping expand Ulta’s reach to areas where there are no Ulta stand-alone stores. 

So, next time you are struggling with your stock picks, ask your girlfriend where she’s shopping. Maybe you will find the next Elf or Ulta. 

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