As the Pandemic Fades, This “Social Proximity” Trade Could Flourish


When you meet with your colleagues over a Zoom (NASDAQ:ZM) call, none of them know what perfume or cologne you aren’t wearing.

Woman smiling with headphones in and typing at a computer
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And when you never leave your house to go a restaurant, bar or church, no one knows what makeup or skincare products you aren’t using.

But now that the world is opening for business and human interaction once again, perfumes, shampoos, and many other personal-care products are returning to our shopping lists.

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Cosmetics sales for the 12 weeks ending May 22 surged nearly 25% from a year ago, according to Nielsen data.

These surging sales illustrate why the stock I just recommended offers a textbook “social proximity” trade. As the pandemic subsides and social distancing recedes, its products will attract growing demand.

Let’s take a look…

Office Life Isn’t Normal … Yet

I’m at the InvestorPlace offices this week in order to do some recordings and meet with the team.

The flight here from the West Coast was refreshingly normal: crowded, delayed a little … annoying in a pre-pandemic way.

According to the most recent Transportation Security Administration (TSA) data, the number of U.S. travelers is back to 75% of 2019 levels. That’s the highest number of domestic travelers since before the Covid-19 lockdowns started … and just about double the number of fliers from a year ago.

The InvestorPlace offices are a different story.

While bustling — and far from the ghost town I encountered when I visited a few months ago — they’re still half-empty. Most employees are still working from home, and there’s not yet a mandate that gets them back.

While most cities and states finished lifting their restrictions on business capacity and social distancing last month — and the stragglers are doing so next month — central business districts and office parks around the nation still look sleepy.

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According to numbers from Google (NASDAQ:GOOG, NASDAQ:GOOGL), workplace activity is about 50% below its normal level.

Now that we’re weeks past peak vaccination, it’s clear that “back to the office” is going to be much bumpier than travel’s comeback.

Some companies — including Nationwide, Twitter (NYSE:TWTR) and Square (NYSE:SQ) — are going WFH more or less permanently. But many others — such as Apple (NASDAQ:AAPL) and JPMorgan Chase (NYSE:JPM) — are trying to get as many as possible employees back to their desks as soon as possible.

Since the start of the year, I’ve been recommending a number of “social proximity” trades … stocks that are primed to rise as the pandemic recedes.

Covid-19 has permanently disrupted the American workplace, but it’s a safe bet that offices will be significantly busier by the end of the summer … and much fuller by year’s end.

That’s why my back-to-the-office trades are still on the launching pad — and have great profit potential.

Like the one I want to tell you more about right now…

The Stock to Watch as We Head Out

The recommendation in focus is among the world’s largest fragrance and cosmetic companies. Unfortunately, its global prominence has not prevented its stock from slumping more than 60% over the last five years.

Clearly, something has gone wrong.

To put it simply, the company went takeover-crazy for a while. It borrowed billions of dollars to buy companies of various sorts. In the process, the company’s net debt swelled.

Initially, its revenue growth kept pace with its debt growth. But that favorable trend ended in mid-2018 when annual revenues topped out… and then started tumbling.

The beauty sector (skin care, hair care, fragrance, etc.) was one of the hardest hit by the Covid-19 pandemic.

First- and second-quarter sales were weak, and the “retail apocalypse” has taken out scores of Ulta (NASDAQ:ULTA) stores… and the Becca chain entirely.

So, while Covid-19 deserves much of the blame for this company’s steep drop, sales had started falling even before the pandemic struck. Debt, on the other hand, continued to climb.

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But this struggling fragrance and cosmetics enterprise has embarked on a major turnaround campaign that I believe will succeed … and will reward investors in the process.

The company is making rapid progress. Its e-commerce successes are particularly impressive … and impactful. During the most recent quarter, e-commerce sales grew nearly 30% year over year — spurred by a doubling of sales on Amazon (NASDAQ:AMZN).

This strong performance continued a string of rising e-commerce sales, which now account for nearly 20% of the company’s total sales.

In both the high-end and mass-market categories, the company is pursuing “digital first” tactics, including signing deals with online influencers and young celebrities and ramping up its integration with youth-oriented online platforms like Snapchat and TikTok.

These new e-commerce initiatives and ventures are not merely sexy stories. They are auguries of future revenue and profit growth … and that growth is just beginning to bud.

It’s already seeing the “green shoots” of reviving demand for both luxury and mass-market fragrances and beauty products, despite important markets remaining under lockdown.

As its turnaround becomes more a matter of fact than faith, investors will likely award its stock with a much higher price.

To find out more about the company and its stock as a member of Fry’s Investment Report, click here.


Eric Fry

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NOTE: On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securitizes mentioned in this article.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls —in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.

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