We're Cutting Our Holdings in This Position and Downgrading It to a Four Rating

Symbol	Transaction Type	# Shares Traded	Recent Price $	Shares Owned After Trade	% Portfolio
COTY	Sell	9,640	9	5,900	1.2

After you receive this Alert, we will sell 9,640 shares of Coty COTY at or near $9. Following the trade, COTY shares will account for roughly 1.2% of the portfolio.

Shares of beauty company Coty have tripped their panic point despite positive comments. This means we are taking a renewed look at the shares and their prospects to bounce back from the continued pressure they have been under.

That pressure has continued despite positive comments from e.l.f. Beauty ELF last week on the cosmetics and skincare markets with the same from Inter Parfums IPAR and International Flavors & Fragrances IFF for the fragrance market. The disconnect is due to the growing concern about the consumer, and as we discussed in today’s video, if we see retailers, including Home Depot HD and others issue tepid guidance, it’s going to fan the flames of those concerns about consumer spending.

At the same time, the continued move lower in COTY stock means that we would need to see a 20% rebound in the shares to get back to break-even with the position. Even though ELF and IPAR lifted their respective forward guidance to match consensus expectations, both of those shares traded off in response. This tells us that when Coty reports it will have to seriously wow the stock market with its guidance. But here as well, the post-earnings response to Coty’s last two earnings reports was met with lower stock prices.

As positive as the comments about its end markets have been, there is also the potential that Coty management will take a more conservative stance with its guidance as consumers become more selective. So far this earnings season, companies that have come up short on guidance have seen their shares punished, and Coty’s consensus H2 2024 EPS growth compared to H1 2024 is already very high.

All of this points to COTY becoming an uphill battle for us, and the smarter play is to start moving out of the name before the company reports its quarterly earnings on August 20.

We will lick our wounds as we make this trade, but fortunately, the work we’ve done in recent weeks, and especially last week, has brought far better-positioned companies into the portfolio. And as we’ve discussed with you, to grow our exposure to them would require making some moves with the portfolio.

We are beginning that process by first dialing back our exposure to COTY and downgrading the remaining slug of shares to a Four rating. Our strategy will be to use near-term strength to close out the portfolio’s COTY position.

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At the time of publication, TheStreet Pro Portfolio is long COTY.