Our investment guru Anne Ashworth makes YOU money by scouring the stock market for the best funds and shares. She reveals how you can cash in on cosmetics…

Looking good can be expensive. Lotions, potions, make-up and creams: they are all expensive. But for investors, they can also be highly profitable.

The target of one of this summer’s most talked-about takeover deals is a cosmetics business established just three years ago by an American model who’s married to a pop idol.

This company’s products, a big success among Gen Z, include a ‘glazed-doughnut effect’ lip treatment.

The $6.41bn e.l.f. Beauty group, celebrated for its discount ‘dupe’ – or copycat – creams and make up, is paying $1bn in shares and cash for Rhode, a beauty company whose sales in the year to March were $212m.

Rhode is led by Hailey Rhode Bieber, an entrepreneur and influencer with 55.1m Instagram followers, an essential in an industry being disrupted by social media. She is the wife of singer Justin and daughter of actor Stephen Baldwin, brother of Alec.

The excitement around the deal suggests that, if your portfolio needs a glow-up, maybe you should look to the global beauty business, whose sales are forecast to reach $600bn by 2028.

Rhode, a beauty company owned by model Hailey Bieber, is being acquired by e.l.f. Beauty (below) for $1bn

New research from Barclays shows that the ‘lipstick index’, still applies.

Under this theory, in tough times women will continue to treat themselves to a small indulgence such as a lipstick – or these days, a peptide lip treatment.

Gerrit Smit of fund manager Stonehage Fleming believes the human urge to look better will always be with us – and therefore promises returns for investors.

‘Beauty is a sector with indefinite sustainable growth, as the desire for beauty is a forever factor. Everyone is getting older and would like to look good doing so.’

Smit highlights the sector’s innovation, with its focus on evolving creams and cosmetics for different markets, ranging from ‘tweens’, the 13-year-olds with complex skin cleansing regimes, to older women combating the consequences of ageing.

Such was the excitement about Rhode’s potential to appeal to all ages that there was a 24pc bounce in it shares.

The purchase of Rhode will also enable e.l.f. (the name stands for eyes, lips, face) to diversify its supply chain. The company, which makes 75pc of its ranges in China, is currently subject to 30pc tariffs in the US, and has already been forced to raise prices.

News of the Rhode acquisition was accompanied by the announcement of 28pc increase in e.l.f.’s sales for 2025 to $1.3bn. This sounds like an impressive rise. But sales leapt by 77pc in 2024.

Ms Bieber and e.l.f. Beauty chairman and CEO Tarang Amin 

The slower growth highlights the industry’s various challenges – such as Chinese consumers’ reluctance to spend.

This disinclination to splash the cash has hit the shares of the beauty power houses: Coty, Estee Lauder, L’Oreal, Shiseido and Puig, the Spanish owner of Charlotte Tilbury.

Estee Lauder shares reached $365 in December 2021. They are now back down at $68, partly due to management and other issues – but also because 26pc of its revenues come from China.

Other forces are also bringing change, as Will McIntosh Whyte, fund manager at Rathbones, points out: ‘Brand loyalty is on the decline, since social media enables start-up brands to reach large audiences and grow rapidly.’

But e.l.f.’s move to snap up Rhode could indicate confidence is returning and there is an opportunity for investors to profit.

At least one influential and hard-headed US investor seems convinced this the case.

Michael Burry, the hedge fund manager whose bet in 2008 on mortgage-backed securities was depicted in the film The Big Short, is backing revival at Estee Lauder.

His Scion Asset Management fund now holds a $13.3m stake in Estee Lauder, owner of brands like Bobbi Brown, Clinique, Jo Malone London and Le Labo.

Who knows if Burry is a regular user of Estee Lauder Advanced Night Repair Serum? But there can be some benefit to committing some of your investment budget to the companies that make the things you love. This familiarity gives you extra insight. Here are your options.

THE BEAUTY PARADE

Among L’Oreal brands are CeraVe, Garnier, Maybelline and the more upmarket Aesop and Lancome

L’Oreal, a €200bn Paris-based business, is the titan of the industry. The founding family, the Bettencourt Meyers dynasty, have a 35pc stake.

Among L’Oreal brands are CeraVe, Garnier, Maybelline and the more upmarket Aesop and Lancome. Demand for these expensive lines helped first-quarter sales to rise by 3.5pc to €11.73bn.

Smit lists L’Oreal’s strengths. ‘Its success is based on intense research: it spends about €1bn a year. Its gross profit margins can be as high as 70pc on some items; it also has pricing power.’

Smit also likes the company’s motto: ‘We do only beauty but all of beauty.’

McIntosh Whyte regards L’Oreal as ‘the quality play’ in the sector because of its early recognition of social media’s importance.

He adds: ‘L’Oreal is adept at acquiring brands popular with younger consumers such as the skincare brands Dr G and Youth To The People. The company uses its scale to turn these brands from niche players into global names.’

L’Oreal shares have increased by 15pc over the past six months to €384. Estee Lauder shares began to surge a month ago, spurred by hopes that the $20bn group can stage a turnaround. For the moment, analysts rate the shares a hold.

E.l.f., by contrast, is rated a ‘buy’, although the shares are 564pc above their level of five years ago. The view seems to be that, although other celebrity beauty brands are for sale, Rhode is the most promising.

Investment guru (and cosmetics lover) Anne Ashworth says she’ll be investing – on the basis that it can pay to put your money where your mouth is

E.l.f. does not seem discouraged by the so-so experience of Coty’s investment in two Kardashian brands. Coty retains a 51pc slice of Kylie Beauty, the Kylie Jenner brand, but her sister Kim Kardashian has bought back her firm.

Coty shares are 81pc lower than a decade ago, and 34pc down over the past six months at $5. But analysts appear to reckon that Coty should benefit from the upturn in the sector and recommend that the shares are worth holding.

Most analysts also consider shares in Ulta Beauty to be a ‘hold’, although this chain of American beauty stores and salons reported better-than-expected first quarter sales late last month, causing an 18pc bounce in the shares to $467.

Ulta’s chief executive Kecia Steelman, summed up the mood that is sparking the recovery: ‘Many consumers indicate that they are leaning into beauty as a comfort and escape from the stress of macro uncertainty.’

Shares in Shiseido, the Japanese group, are 65pc down over five years at 2,441 yen. Nevertheless, analysts consider Shiseido to be a ‘hold’ evidently hoping the company is addressing problems such as poor performance of its whimsical Drunk Elephant skincare brand.

For a while, Drunk Elephant was a favourite among teenagers. But these are fickle consumers, and there was some controversy as to whether this age group requires potions to tackle wrinkles. The London activist investor Independent Franchise Partners has a holding in Shiseido which should add to pressure for change.

More optimism surrounds the Spanish group Puig which is seen as ‘buy’ on the basis of more demand for its Paco Rabanne and other scents. The shares stand at €17.

One analyst predicts a rise to €30 – which would be good news for Charlotte Tilbury, the founder of the eponymous brand. She retains a minority shareholding in her creation until Puig assumes full ownership in 2031.

A tube of Charlotte Tilbury’s bestselling Pillow Talk lipstick costs £29. A tube of W7 Naked Desire lipstick (in a similar gold-fluted casing) is £4.

On the basis that many will prefer a cheap treat, shares in the W7 company – the £388m Warpaint London – look attractive buy at 455p. Analysts have set an average target price of 666p.

As an unashamed lover of creams, make-up and perfume – I have drawers full of the stuff – I am going to take a bet on a spread of beauty stocks.

I will be investing on the basis that it can pay to put your money where your mouth is. Or should that be what you put on your eyes, your lips and your face?