My Wife and Warren Buffett's Common Obsession, Rate Cuts Are Sealed...

Goodmorning and happy Thursday everyone!

As expected, the bulls came rushing in fashionably late yesterday after a better than expected CPI reading - pretty much sealing the deal for a September rate cut. This had investors revisiting their recession fears (and their current mortgage rates) as the #1 question now is whether Jerome Powell will give us a nice 25 point slice or a massive 50 point bonus… 

(Source: Bloomberg) 

Of course, only time will tell what mood Powell will be in come September, but with the Dow inching up +0.6%, the S&P 500 nailing +0.3%, and the Nasdaq barely scraping by with a +0.003% green day, the sentiment is clear: Ladies and gentlemen, the bulls are back. 

(Source: Giphy) 

However, while most investors piled back into the Big Tech heavy Nasdaq, it looks like Grandpa Warren is taking his talents (billions) to another kind of opportunity. One that gives him and my wife an interesting subject in common.

You see, apparently to Warren, even if the global markets crash and all hell breaks loose (as his $277 billion in cash reserves hint at), women (and men… it’s 2024) are still going to do everything they can to look absolutely flawless w/ their glitter eyeshadow. 

(Source: Giphy) 

Which is why, Buffett has now made a sizable investment in Ulta Beauty by snagging up 690,000 shares as shown in the latest SEC filings. Again, this makes sense because let’s face it, in a world where “Zoom face” is a thing, beauty isn’t just skin deep: It could be recession-proof.

(Source: QZ) 

This news had Ulta Beauty absolutely ripping during pre-market as the stock peaked at 14% gains - making its -32.38% YTD descent a tad bit better for investors. In addition though, this Buffett move also comes just in time before Ulta’s upcoming earnings report on August 29th, where the company has been on a hot streak, beating top and bottom-line estimates for the past four quarters.

(Source: Investopedia) 

For instance, back in May, Ulta’s earnings per share were about as fine as a frog hair split four ways as it finessed expectations by +3.04% (analysts expected $6.28, Ulta reported $6.47). Revenue barely squeaked by with about as breakeven as one could get with a +0.05% surprise. But hey, a win is a win, amirite?

On the other hand though, while Ulta’s revenue grew 3.48% year over year, its net income and profit margins took a nosedive, dropping by -9.78% and -12.76%, respectively. Yet, analysts (including Buffett obvi) are still optimistic, setting a consensus price target of $502.88—about a 52.85% upside from current levels. Which on the surface, may not seem like much considering recent upgrades from Oppenheimer and Loop Capital Markets are about as lumpy as old powder with their predictions being down -20.32% and -16.72%. 

(Source: The Fly) 

So clearly, while Ulta has shown a positive response this morning, the stock is definitely a mixed bag when it comes to the financials. But then again, Buffett’s no stranger to playing the long game. Looking deeper, the decision to pile into this beauty stock is likely due to Ulta’s resilience and brand loyalty (my wife being one). With 1,395 stores across the U.S., Ulta isn’t just selling products; it’s selling an experience. Plus, in the age of e-commerce, brick-and-mortar stores that double as beauty playgrounds are rare unicorns. 

(Source: Giphy) 

Additionally, Ulta’s strategic partnerships with brands like Fenty (not short for Fentynol) Beauty by Rihanna, have given the company that extra jolt of celebrity obsessiveness that teenage consumers swoon over. So given this, Buffett obviously sees an intrinsic value play here. 

(Source: Beauty Inc.)

Now of course, with the thinning margins and the escalating competition that the beauty and skincare industries bring with it, Buffet's magic touch doesn’t guarantee success. However, with the company’s upcoming earnings report being a major litmus test to Buffetts insider information crystal ball being correct or not, it’s definitely worth keeping an eye on. 

So while your wives or husbands (if that’s their thing) gloss up their eye shadow this AM, just remember, Grandpa Buffett now has his wrinkly ‘ole hands in that pot too. And he’s planning to make some big big bucks on it in the process. 

(Source: CNBC) 

At the time of this writing, Ulta Beauty is up +11.24% (down -24.93% YTD). 

Stocks.News does not hold any postions in companies mentioned in the article.