Pro Offers Cheaper Alternative In The Beauty Stock Drawer

Beauty stocks were in focus Thursday after Oppenheimer analyst Rupesh Parikh upgraded Estee Lauder Companies Inc EL to Outperform and named it a "top pick."

But with a price tag north of $200 per share and a valuation above $75 billion, one market pro has a cheaper alternative that offers "big bang for our buck."

A Small Name: Beauty product maker e.l.f. Beauty Inc ELF trades at around $20 per share and is a small-cap company valued at just $1 billion, MKM Partners Chief Market Technician JC O'Hara said on CNBC's "Trading Nation." Finding these small companies that offer momentum could generate attractive returns.

Taking a look at e.l.f.'s chart, the stock established a double bottom in March 2019 and again in March 2020, the market technician said. The stock has since more than doubled after bottoming at $7.58 and is now testing a "significant" resistance level of $21, he said. 

If the stock breaks above $21, it can gain momentum, and the chart pro said he sees a shorter-term technical price target of $24.

A Big Retail Name: Ulta Beauty Inc ULTA is another beauty play with a stock price north of $200, but the  shares are still cheap when viewed from a different perspective, Laffer Tengler Investments Chief Investment Officer Nancy Tengler said on "Trading Nation."

On a price-to-sales ratio basis, Ulta's stock is "about as cheap as it's ever been," Tengler said.

The stock can move to the upside if Ulta continues to act on its early COVID-19 game plan of streamlining costs, winning online users, slowing down store openings and reducing spending, she said. 

"We think if they can reaccelerate sales into the high teens — they don't even have to get back to the mid-20s — that shareholders will be rewarded." 

Related Links:

Oppenheimer Names Beauty Company Estee Lauder A 'Top Pick'

BofA Says Ulta Beauty 'Well-Positioned' For Life After Coronavirus