Investors are worried about how sales in the U.S. will be hurt by tariffs on Chinese goods, but this cosmetic brand is enjoying its best growth overseas.
In what might be a worst-case scenario, this shoe stock only expects around a 13% hit to profits this year due to tariffs, suggesting fears are overblown.
I've traveled the U.S.A., and everywhere I go, locals believe that their weather is the craziest. When I'm in Virginia they say, "You know what they say about the weather in Virginia, don't you?" And when I'm in Wisconsin, Florida, New York, or another state, they do the same thing: They insert their own state in this question. And then everyone uses the same punch line, "If you don't like the weather, wait five minutes."
I don't have the heart to tell them that this joke is told everywhere -- everywhere, that is, except Wall Street. But I think it's just as appropriate there. If 2025 has taught me anything, it's that, "If you don't like stock market conditions, just wait five minutes."
After a rough start to April, the S&P 500 suddenly found itself down nearly 20% for the year. Many pundits told investors to brace for more downside, and they had solid reasons for such advice. But as the chart below shows, the stock market came roaring back just weeks later.
When talking about stocks on sale, I would have had more options for this article a few weeks ago when stocks were falling. Now that they are rallying again, many quality ideas are quickly approaching previous highs or making new ones. That said, there are some ongoing bargains in the market that investors should know about right now.
Image source: Getty Images.
1. An underappreciated cosmetics stock
One of the best growth stories in the entire cosmetics industry is e.l.f. Beauty(NYSE: ELF). Trailing-12-month revenue has more than quadrupled in only the last five years. The company is taking market share by being a low-cost leader.
But its value proposition with consumers is under threat due to import tariffs on goods from China, where it sources practically all of its products, increasing its costs.
As of this writing, many tariffs are paused and a long-term deal is being discussed. But I'm not sure that all headwinds will disappear for e.l.f. Beauty's business. It's likely that there will still be some obstacles to navigate when the dust settles. Therefore, the question investors should ask is whether the company can navigate so many changes on the global stage.
I believe it can. E.l.f Beauty went down this road before during the first term of President Donald Trump, and it will likely try to keep a delicate balance between maintaining profitability while keeping prices low enough to take market share.
That said, the business should be less affected in international markets, and this is really where its biggest opportunity is.
In its most recent quarter, the third quarter of fiscal 2025, e.l.f. Beauty generated only 20% of its sales in international markets, leaving lots of room for international growth. And that's exactly what it's experiencing right now, with Q3 sales internationally up 66% year over year.
With e.l.f. Beauty trading at 3 times sales, I believe it is a cheap stock for long-term investors. The ride will likely be bumpy in 2025, and profits could be facing headwinds. But as long as it keeps playing the long game, I believe it will be rewarded for ongoing growth at home and abroad.
2. A perennially undervalued shoe stock
Some might object to me saying that the shoe stock Crocs(NASDAQ: CROX) is on sale. After all, it's already up more than 30% from its recent low. But trust me, this is a stock on sale. In fact, it's almost always on sale from a valuation perspective.
As of this writing, Crocs stock trades at less than 8 times its earnings. Granted, this stock usually trades for less than 10 times earnings, so it's normally cheap.
That said, it has dipped below 8 times earnings only once in the last five years. And the stock is up about 150% from its last trip below 8 times earnings -- in other words, it was a great time to buy.
It was a great time to buy Crocs stock then, because the company continued to grow and rake in profits despite investors' fears. What about fears this time around? Well, I believe they are overblown.
Going into 2025, Crocs expected $1 billion in full-year operating profit. That was before tariffs between the U.S. and China escalated to 145%. Management estimates that even at that outrageous level, it would take a $130 million hit.
In other words, Crocs would still expect profits of almost $900 million if tensions between the U.S. and China remain. That's still a lot of money to grow its business and reward shareholders. Profits will likely be higher than this, however, because it seems that some deal will ultimately be worked out.
Crocs is a shoe brand that hasn't gone out of style for a long time, and I expect that to be no different in 2025. It's Heydude brand is starting to show signs of life, with sales above management's expectations in the most recent quarter. And the company is using profits to pay down debt and buy back stock at these cheap prices.
In closing, if you have an extra $1,000 to invest and are looking for stocks on sale, then I believe that e.l.f. Beauty and Crocs are worth a closer look. Whether investors buy one, both, or neither is ultimately up to every individual. But with Crocs already in my own portfolio, e.l.f. Beauty is one near the top of my own potential buying list right now.
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Jon Quast has positions in Crocs. The Motley Fool has positions in and recommends e.l.f. Beauty. The Motley Fool recommends Crocs. The Motley Fool has a disclosure policy.
