The massive gains over the last two years for Eli Lilly stock and Elf Beauty stock prove to investors that trading on beauty can be more than skin deep. They're part of an emerging trend one market strategist calls the "vanity trade."
"I think you have to look at it as a shift for so many people that can really help certain areas of the market," Mish Schneider tells Investor's Business Daily's "Investing with IBD" podcast. Schneider is chief market strategist at MarketGauge.com. She says the introduction in particular of weight-loss drugs is affecting stocks in different industries.
And knowing the connections between these stocks can help identify potential trade ideas.
Novo Nordisk, Eli Lilly Stock Originate The 'Me-Conomy'
Weight-loss drugs like Novo Nordisk's Ozempic and Wegovy, alongside competitors like Eli Lilly's Zepbound, are the vanguards of the vanity trade. Schneider says their development and increasingly wider use has become a catalyst. "Until these diet drugs started to really become more mainstream, the collective consciousness of the consumer was all about 'we,'" said Schneider.
She says the tangible weight-loss result from such drugs is shifting consumer spending away from a "we" economy. That economy is dominated by largely shared experiences like travel, restaurants and experiences. What's rising is a "me" economy focused around stocks related to personal self-improvement.
Audio Version Of Podcast Episode
Meanwhile, weight-loss drugs like those developed by Novo Nordisk and Eli Lilly were originally developed to treat diabetes. The drugs had the side effect of suppressing appetites and therefore contributing to weight loss. "They have to become a little bit more affordable, but if they do and we have a whole slew of people entering as consumers from a different mindset … what does that mean in terms of what they're going to do for themselves from there?" said Schneider.
ELF Stock Supplies Beauty Trade Potential
Additionally, a renewed focus on personal care has potential implications on beauty stocks like Elf Beauty. This comes as consumers start to pay more attention to their appearance after losing weight. "It's a company that can continue to do well because of the vanity trade, or people could be looking more at just general skin care," said Schenider.
After a massive run, ELF stock has been battered by the recent market correction. This as cost-sensitive consumers are cutting back on discretionary purchases. Shares have recently hit lows not seen since January.
Elf tried to break out of a cup-with-handle pattern over the summer, but that breakout has failed. The stock is now below long-term support at the 200-day moving average.
ELF stock currently holds an IBD Composite Rating of 80 and is ranked No. 3 in the Cosmetics and Personal Care group, according to IBD Research.
Other vanity-focused stocks could see a boost on Eli Lilly stock and other weight-loss drug makers. Athletic apparel stocks like Lululemon and Nike could climb as consumers hope to keep weight off by focusing on physical activities. And fast food stocks could see a rotation away from less healthy fare like McDonald's and toward more health-conscious chains like Sweetgreen.
"I think you have to look at it as a shift, for so many people, that can really help certain areas of the market," said Schneider.
Could Vanity Trend Extend To Dating Apps?
Investors focusing on trading Eli Lilly stock and other weight-loss beneficiaries could one day see a ripple effect that spills over to dating apps. "These are the same people who stay home and don't go out and they're going to be like, hey, let me show off my new self," said Schneider. "And that's the main way we do things now, through online dating services."
But dating services like Match Group stock and Bumble stock have not performed well recently. Schneider attributes this, in part, to reduced consumer spending over recession fears. Bumble stock hit a high of 84.80 in its first week of trade in February 2021 and is now trading just over 5 a share. The stock has an IBD Composite Rating of 35, according to IBD Research.
Match Group stock is attempting to form a long bottoming base. The stock peaked in October 2021 at 182 and is now trading at 34 a share. Match group is ranked No. 22 in the Internet Content Group, and holds an IBD Composite Rating of 36 out of 99, according to IBD Research.
Personal Image Trades: Look In The Mirror
Whether secondary or tertiary beneficiaries of the vanity trend, like dating apps, participate along with the likes of Eli Lilly is yet to be seen.
Even so, Schneider says the vanity trade is likely to prevail because of consumer trends. "We don't know if we're going to go to stagflation or recession, or what's going to happen geopolitically," she said. "I wouldn't jump in, but once the dust settles, these are going to be great places [for investors]."
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