Two attractive opportunities in the cosmetic surgery sector

Not so long ago, most people associated cosmetic surgery with images of Michael Jackson's ever-changing face. But with operations becoming cheaper, quicker and safer, cosmetic surgery has crept out of the realm of the weird, rich and famous and onto the radar of the everyday consumer. The global market is now worth $20bn, with the number of procedures in the US growing by 15% a year, says the American Society for Aesthetic Plastic Surgery. Over here, the British Association of Aesthetic Plastic Surgeons (BAAPS) saw a 31% rise in cosmetic surgery in the last year alone fuelled largely by demand for liposuction amongst women in Wales, Europe's second most obese country.

Cosmetic surgery boom: reasons for growing demand

But regardless of the treatments needed, the key reasons behind the boom are the same, whether you live in Silicon Valley or the Rhondda Valley. People may have long dreamed of remaining young and beautiful, but today's ageing Westerners are the first to be armed with the money and technology to actually have a reasonable stab at achieving this goal.

In America, the baby-boomers those born between 1946 and 1964 now make up 26% of the population. As Alex Kuczynski points out in her book Beauty Junkies, they see preserving their youth as a way to preserve their identity.

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This has caused perceptions about the time of life at which middle age begins gradually to shift from 40 to closer to 60, says Natasha Singer in The New York Times; alongside this development comes a growing pressure to stay looking younger for longer. With baby-boomers controlling about $2trn in spending power and 50% of all discretionary income in the US, that's good news for plastic surgeons.

Another factor pushing demand higher is the range of cheaper, safer, less invasive procedures now available. This has caused a shift in the type of procedures baby-boomers are demanding. A decade ago, getting rid of wrinkles meant an expensive facelift, with weeks spent in recovery. But now Botox injections can temporarily paralyse the muscles beneath frown lines, while Restylane injections fill out facial creases. Almost a half of the nine million cosmetic procedures performed in the US last year were botox injections. In LA, you can even get a botox top-up in your local shopping centre.

Cosmetic surgery boom: laser treatment

Another big growth area is laser treatment. According to CIBC World Markets, the cosmetic laser market is valued at about $1bn worldwide, with sales having grown by 15% last year. Lasers are mainly used to perform skin rejuvenation, temporarily reduce wrinkles and to perform hair removal and vein treatment. Because they are so cheap and easy to use, the less sophisticated practitioners in the trade the salon in the shopping centre, for example can easily adopt laser devices. Skin tightening, which represents the fastest-growing segment of the aesthetic-laser market, is projected to grow at a 31% compounded annual rate over the next five years, according to the Millennium Research Group.

Of course, many of these less-invasive procedures only act as temporary fixes for those hoping to cling onto their youth. The pressure to maintain these rejuvenated looks will see them return for cosmetic treatments. With TV shows like Ten Years Younger and glossy magazines promoting such treatments as a key part of any self-respecting person's grooming regime, the market will only get larger. Below are two firms that should benefit.

Cosmetic surgery boom: two of the best stocks in the sector

"Beauty may only be skin deep, but that's all aesthetic laser companies need," says Rich Duprey on Motley Fool. Duprey reckons Palomar Medical Technologies (Nasdaq:PMTI) will become the dominant force in the sector. Palomar is a medical equipment and appliance manufacturer, specialising in laser treatments for skin care and hair removal. Research and development is key to maintaining dominance in the sector and Palomar leads the way, spending 11.2% of revenues on it. It also takes a particularly aggressive stance on its intellectual property. The list of competitors that have had to pay royalties for Palomar's patented products is growing and although a legal dispute with rival Candela threatens this steady income stream, the outcome of any trial "is years away". There is also the prospect of expanding its lasers into the home through a $1.5bn collaboration with Gillette. The shares trade on a p/e of 14.5, well below the industry average of 28.

Another attractive opportunity is Aim-listed Chromogenex (LSE:CGX). The company develops, designs and manufactures lasers to treat acne, psoriasis and vascular lesions. The acne market alone is worth around $5bn worldwide. The company has just reported a 274% increase in its operating profits from 2005 to last year and the shares trades on an attractive p/e ratio of 7.19.