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2 Stocks to Watch in Personal Products: Procter & Gamble Co. and Coty Inc.

Personal product stocks generally aren't known for eye-popping returns, but they can offer stable growth in volatile market conditions. Personal product stocks are non-cyclical, which means that demand remains constant regardless of economic conditions. Let's take a look at two well-known personal product stocks, Procter & Gamble and Coty 's , to understand the benefits and drawbacks of investing in the sector.

Procter & Gamble

Procter & Gamble owns one of the largest personal product portfolios in the world. Its top brands include Bounty paper towels, Tide detergent, Head & Shoulders shampoo, Fusion razors, Olay beauty products, and Pampers diapers.

Coty's 10 "power brands". Source: Coty.

Last quarter, Coty's revenue fell 6% annually to $1.11 billion and narrowly missed estimates by $30 million. But on a "like-for-like" basis, which only includes activities which were in effect during both periods, sales only fell 2%. Sales of its fragrances and skin care products fell annually on a like-for-like basis, but its color cosmetics business posted 9% growth on the same basis. Excluding currency impacts, fragrances and skin care revenue fell by the single digits while sales of color cosmetics surged 25%. Only 38% of Coty's revenues come from the Americas, so a strong dollar takes a big bite out of its sales.

On the bottom line, Coty's adjusted net income more than doubled to $219.7 million, or $0.59 per share, which exceeded estimates by $0.29. Coty attributed that growth to tax benefits and higher adjusted operating income. Looking ahead, Coty expects the P&G merger, which adds big brands like Cover Girl and Max Factor to its portfolio, to more than double its annual revenue and produced savings of $550 million on an annualized basis over the following three years. Coty also recently agreed to buy Brazilian personal care and beauty brand Hypermarcas S.A. for $1 billion. Both deals will substantially increase its exposure to overseas markets.

Investors seem optimistic about Coty's inorganic growth strategy, and the stock has rallied 35% this year. However, Morgan Stanley analysts recently warned that the company could suffer from acquisition indigestion after the deal, and the stock's trailing P/E of 29 remains significantly higher than the industry average.

Watch these stocks, but do your homework

P&G and Coty are interesting personal products stocks to watch, but I'm not eager to buy either one. Both companies face heavy foreign currency headwinds and growing pains ahead.

P&G might eventually streamline its business by divesting more brands, but it could be smarter to split into separate companies. Coty's brand portfolio will get much bigger next year, but it's unclear if the company can do a better job selling P&G's second-tier beauty brands than their previous owner. For now, I'd like to see how these plans pan out and wait for the dollar to weaken before investing in either company.

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The article 2 Stocks to Watch in Personal Products: Procter & Gamble Co. and Coty Inc. originally appeared on Fool.com.

Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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