L'Oréal has been moving for years with a discipline that doesn't need big headlines to prove its strength. Its strength stems from an operating model that masters three pillars: continuous innovation, extremely effective global marketing and the ability to set prices even in tense environments. The company has made that formula a standard in the cosmetics industry, and maintaining it for decades is no accident.

When I took a position in it, the thesis rested on the predictability of its organic growth and the stability of its margins, backed by a diversification that few companies in the sector can match. Since then, the stock has been advancing at the pace that characterizes mature, well-managed businesses: without fanfare, but with a progression that tends to reward the investor's patience.

During this time, L'Oréal has continued to strengthen its sales mix, boosting premium categories and relying on increasingly polished omnichannel distribution. That approach has enabled it to sustain a very balanced financial profile: robust margins, solid cash generation and a return on equity that remains an industry benchmark. It's a kind of quality that often seems expensive... until the market comes back to support it.

With that performance, the exit target of around €405 starts to feel consistent. It is not a maximalist figure, but a reasonable level to ensure a cumulative return from entry, in a company whose compounded growth - albeit moderate - remains constant. Even so, the question that accompanies quality companies arises: execute the plan or leave room for the business to continue to unlock value over the long term.

This is the usual tension. On the one hand, crystallizing profits after an orderly run; on the other hand, the risk of selling just before the stock goes on another upward run, something that L'Oréal has proved capable of doing more than once. In any case, the position has served its purpose: to offer stability, sustained appreciation and the peace of mind of being invested in a world leader whose strategic discipline rarely disappoints.

Handelsblatt searched the Dax, Stoxx 50 and Dow Jones for so-called quality stocks that are undervalued - i.e. whose price level is lower than the long-term average.

In order to be selected as a quality stock, the companies must have consistently fulfilled five conditions over the past five years:

• Rising or at least stable earnings before interest and taxes (EBIT),
• high liquid funds from the core business (operating cash flow) to cover ongoing costs at all times,
• low to moderate net debt in relation to equity; well below 100 percent,
• Rising dividends year after year,
• lower valuation than the company's own ten-year average - calculated from the ratio of consolidated earnings to market capitalization.

The sharp rise in share prices in recent years means that only five out of a total of 120 companies listed on the Dow, Stoxx and Dax fulfill all five conditions. Only one stock from the leading German index is included.

Visa $V (+0,4%): The moat stock is available with a six percent valuation discount

Current dividend yield: 0.8%

Several million merchants worldwide accept payments in supermarkets, when shopping online or when traveling abroad. More than half of the group's revenues remain as profit, making Visa one of the most profitable companies worldwide and at the same time a typical moat share.

Higher prices and thus inflation have a positive effect, as they mean higher revenues for Visa because the credit card fees are linked to the merchant's turnover as a percentage.

L'Oréal $OR (-0,77%): Ten percent valuation discount and the Group is growing faster than the market

Current dividend yield: 1.9%

When the world's largest cosmetics manufacturer reported sales growth of 4.2 percent in the past quarter, the share was one of the biggest losers of the day. Analysts had expected more. The share is trading 20 percent below its record high.

According to analysts' average forecasts, L'Oréal should earn 6.7 billion euros before interest and taxes in the current full year. That would be more than ever before and almost twice as much as five years ago. In the same period, the dividend per share rose from 3.85 euros to seven euros.

With a P/E ratio of 27.4 based on the earnings forecast for the next four quarters, the share is valued ten percent lower than its ten-year average.

Procter & Gamble $PG (+0,88%): The dividend is safe and always rising

Current dividend yield: 2.9%

Branded products such as Ariel, Pampers, Braun and Gillette provide the American consumer goods manufacturer with reliably rising earnings. Over the past five years, earnings before interest and taxes have risen by 23%.

However, this year has shown that even such defensive shares are not resistant to price losses. Procter & Gamble is currently trading just under 20 percent below the record high it reached twelve months ago.

There are two reasons for this: the preference of many investors for more speculative technology shares, but also higher financial burdens for many consumers due to the rising cost of living. As a result, more consumers preferred cheaper own brands from retailers such as Walmart in the USA or Edeka and Rewe in Germany.

In the long history of the stock market, such price setbacks have almost always proved to be good opportunities to enter the market. The share is currently valued at a P/E ratio of 20.8 based on the earnings forecast for the next four quarters. This is seven percent below the average of the past ten years - after P&G had been valued above the historical average in recent years.

The strongest argument is probably the profit distributions. The Group has paid dividends every year since 1890. Since the end of the 1950s, Procter & Gamble has increased its dividend every year. Around 50 percent of profits go to shareholders.

This leaves enough of a buffer to increase the dividend even in years with slightly falling profits. Over the past five years, the dividend has risen by around one euro to 3.75 euros per share.

German Stock Exchange $DB1 (-0,57%): Not only the stock market business drives profits

Current dividend yield: 1.8%

The Frankfurt stock exchange operator is set for its seventh record profit year in a row in 2025. In the third quarter, net revenue, pre-tax profits and earnings per share continued to rise as usual. Nevertheless, the share, which has risen sharply in recent years, has come under pressure in recent months: down 25% since the beginning of May.

Deutsche Börse is currently negotiating the purchase of the fund management platform Allfunds for 5.3 billion euros. Allfunds offers fund managers and distributors a platform for trading, data analysis and compliance systems.

The result of so much consistency is reliable dividends: The dividend has risen for nine years in a row, and the tenth increase is due next spring.

In view of the recent share price losses - coupled with rising consolidated profits - the share is no longer overvalued after a long time. With a P/E ratio of 18.7 based on the expected profits in the next four quarters, the share is valued three percent lower than its ten-year average.

Novo-Nordisk $NOVO B (-1,58%): Highest valuation discount and highly speculative

Current dividend yield: 3.8%

The most speculative share among the stocks portrayed here is Novo Nordisk. With the presentation of its third-quarter results, the Danish pharmaceutical group once again lowered its sales and earnings targets. In addition, the management, under its new CEO since August, Maziar Mike Doustdar, cut its investment plans.

The company had grown strongly with the sales injection Wegovy, which had made Novo Nordisk the most valuable stock market group in Europe for a time, before competitors, above all the US group Eli Lilly $LLY (+0,55%)successfully competed with similar products. Mass redundancies at Novo Nordisk were the result.

Despite all the setbacks, the pharmaceutical company is still increasing its profits - but at a slower rate. In the current year, analysts are forecasting average earnings before interest and taxes of the equivalent of 14.1 billion euros, compared to 13.5 billion euros in the previous year.

Since last summer's record high, the share price has fallen by 70 percent. This constellation - rising profits, collapsing share price - makes the once very highly valued share with a P/E ratio of 12.9 suddenly inexpensive. The ten-year average is almost twice as high with a P/E ratio of 23.4. No other quality share is currently trading at such a high valuation discount.

Novo Nordisk recently achieved positive results in tests with the drug Amycretin in diabetes patients. According to the company, these patients reduced their weight considerably and were also able to significantly lower their blood sugar levels.

This was Novo Nordisk's core business before the hype surrounding weight loss injections began. Over the past 30 years, the number of diabetics worldwide has quadrupled to around half a billion. According to the market research institute Mordor Intelligence, the Group has a 45 to 50 percent share of insulin products, making it the undisputed global market leader.

Source text (excerpt) & image, Handelsblatt 01.12.25

(https://www.sueddeutsche.de)

The so-called lipstick effect describes the phenomenon that consumers do not completely forego luxury during recessions, but buy smaller luxury items when large purchases are no longer available.

(The chart below compares the performance of ULTA Beauty and the S&P 500 since March 13, 2020, when the nationwide COVID-19 lockdowns began).

(https://de.tradingview.com/chart/Wl3dkBka)

The term was coined by Juliet Schor back in 1998.

"They are looking for affordable luxury, the thrill of buying in an expensive department store, indulging in a fantasy of beauty and sexiness, buying 'hope in a bottle. Cosmetics are an escape from an otherwise drab everyday existence".

He gained notoriety when Estée Lauder boss Leonard Lauder realized after the 2001 attacks that his company was selling an unusually high number of lipsticks.

Without further ado, Lauder considered lipstick to be a counter-indicator to the economic situation.

Today, the effect is widely extended to consumer goods beyond cosmetics:

Small goods instead of expensive prestige items gain in popularity during crises.

1.

What is the lipstick effect?

In essence, the lipstick effect means

When budgets shrink, consumers cut back on expensive purchases - but indulge in a little sin.

"Consumers will still tend to buy small luxury items even during an economic downturn".

Or:

If you can't afford a car, you might buy the new luxury lipstick instead of nothing at all.

(https://fastercapital.com/startup-topic/People-Will-Actually-Buy.html)

After 9/11, the demand for lipstick shot up by around 11%.

Later, during the 2008 financial crisis $EL (+0,68%) again reported rising cosmetics revenues, while other sectors suffered.

The lipstick effect is not constant; extreme situations such as deep snow or store closures due to the pandemic can weaken it.

However, in normal downturns, studies show that it works quite reliably as a consumption indicator.

https://carlsonschool.umn.edu/sites/carlsonschool.umn.edu/files/2018-10/Lipstick_JPSP_2012.pdf?utm_source

2.

Psychological drivers

(https://www.falstaff.com/de/news/im-rausch-der-hormone)

Why do people reach for chocolate rather than expensive theater tickets in uncertain times?

Psychology is behind the lipstick effect.

Even when money is tight, people want to treat themselves to something good - a sweet consolation or a new make-up.

Consuming lipstick or ice cream can lift your mood and give you the feeling that you are doing something positive.

(https://carlsonschool.umn.edu/sites/carlsonschool.umn.edu/files/2018-10/Lipstick_JPSP_2012.pdf?utm_source)

In a recession, women show an increased interest in beauty and attractiveness products, especially when they feel a high motivation to increase their attractiveness or to attract a partner.

This supports the lipstick effect hypothesis:

Even in times of crisis, people do not forgo small luxury items - especially those that boost self-esteem or attractiveness.

The study explains this in terms of evolutionary psychology:

• In uncertain times, perceived financial security decreases.
• People (especially women in this study) therefore invest more in their appearance to send signals of attractiveness that potentially symbolize access to stable social and economic resources.

3.

Economic impact: Crisis-winning industries

In many downturns, certain sectors have benefited disproportionately. Traditionally, cosmetics providers have flourished - lipstick, mascara etc. are seen as an "affordable luxury".

For example $OR (-0,77%) reported increases in sales and profits for the crisis year 2008 despite the global contraction.

This effect explains why cosmetics shares are often considered stable. Tobacco and alcohol companies are also often robust:

Habitual goods such as cigarettes or beer are considered "addictive" goods - even in bad times, demand remains relatively stable. (Historically, cigarettes were even used as a means of bartering for war).

Fast food chains such as McDonald's do well because people want cheap food when everything is more expensive.

Gambling providers can also boom when dreams become more important than sober calculation.

Streaming services/online entertainment are typical: while physical contact is declining, the need for internet entertainment is increasing (Netflix, for example, grew strongly during coronavirus). Investopedia specifically names "fast-casual restaurants and multiplex cinemas" as winners of the crisis.

• Cosmetics

($OR (-0,77%)
, $EL (+0,68%))

Sales continue to rise in 2008 despite the crisis. The global cosmetics market amounted to around USD 504 billion in 2022 (growth +15% compared to 2021) - a sign of the continued importance of beauty care.

• Tobacco/alcohol

($BATS (+0,26%), $PM (+0,55%), $MO (+0,11%), $DGE (+2,23%))

Habitual drinkers and smokers rarely cut back further, tend to consume the same thing or switch to cheaper brands. Tobacco, for example, was an expensive means of exchange during the war.

• Fast food & entertainment

($MCD (+0,34%), $NFLX (+1,49%), $AMC (+1,02%)
)

Affordable indulgences and distractions are in demand. Reports from the corona crisis document, for example, that Amazon recorded a +70% jump in e-commerce sales in the beauty and care sector during the lockdown compared to pre-crisis levels - an indication that consumers were busy ordering small luxury items online.

4.

Historical examples of crises

Concrete history makes the effect tangible: Already after 9/11 in 2001 $EL (+0,68%) reported unusually high lipstick sales - Leonard Lauder even spoke of a "counter-indicator" to the recession.

The picture continued in 2008/09:$OR (-0,77%) and other cosmetics companies fared better than the market as a whole (they were able to expand their sales), while luxury goods shrank.

Corona pandemic (2020) again brought examples: Although the economy slumped in the first half of the year, online trade in beauty products boomed,

Amazon recorded a +70% increase in beauty/care products in e-commerce in spring 2020 compared to the pre-crisis period and Sephora ($MC (-1,39%)) reported a +30 % increase in online sales compared to 2019.

The effect was even evident in 2022/23: according to market researchers, around a third of make-up customers in the UK bought products as a "reward", with spending on lipstick there increasing by around 12.3% in 2023 (despite the tight cost of living).

In China, the lipstick effect was conspicuously absent in 2022, as a study by the China Institute made clear. (https://cidw.de)

"Despite government efforts to promote moviegoing with subsidies and discounts, consumers remain cautious, especially in tier 1 cities. The "lipstick effect", according to which small expenditures increase in times of crisis, did not materialize in China. In December, the China Film Administration launched a subsidy program."

5.

Stock markets in times of crisis

How did investors react to the lipstick effect? Some consumer stocks are considered defensive securities. Thus $OR (-0,77%) 2008 continued to show a profit - a prime example of stability. Estée Lauder experienced a small price jump in 2001 as investors bet on the strong demand for beauty products.

Tobacco stocks ($BATS (+0,26%) , $MO (+0,11%), $PM (+0,55%)) and food companies ($NESN (+0,48%) ) were also regarded as pullback stocks:

Their cash flows suffer comparatively little as underlying demand continues.

McDonald's ($MCD (+0,34%)) was largely able to compensate for its 2008 share price slump by 2010, and the share price also recovered quickly after the coronavirus slump in 2020.

Netflix ($NFLX (+1,49%)): Its price briefly doubled with the lockdown dividend, after which the situation normalized.

6.

Behavioral economic classification

The lipstick effect fits well into the picture of loss aversion and prospect theory: investors and consumers avoid large losses (e.g. cash tied up in a car) and value small gains relatively highly.

(https://hub.hslu.ch/business-psychology/prospect-theory)

In this sense, an inexpensive luxury item minimizes the feeling of "having done without".

Social influences also have an effect: If you see friends treating themselves to something despite the crisis, you are more likely to justify it for yourself.

Behavioral economics thus explains why people satisfy their unpaid desire for a little happiness during a crisis - often reflexively, emotionally and depending on the context.

(https://www.b2binternational.com/publications/what-is-behavioural-economics)

In both world wars, cigarettes were more a part of survival than chocolate - as a tranquillizer in the trenches and a tangible bartering commodity.

Hitler had smoking banned in many places during the Second World War, but tobacco was still available at the front. Chocolate became scarce in 1939: US soldiers were served sweets in their rations, officially to boost morale. Other goods such as coffee, ice cream and video games have similar stories - in the USA, for example, the chocolate business boomed briefly after the world wars as a nostalgic feel-good store.

What was good as a small consolation in war is considered a luxury in peace.

Sources:

https://www.sueddeutsche.de/panorama/lippenstift-mode-geschichte-1.5360041

https://fastercapital.com/startup-topic/People-Will-Actually-Buy.html

https://fastercapital.com/content/The-Lipstick-Effect-and-its-impact-on-consumer-behavior.html

https://www.investopedia.com/terms/l/lipstick-effect.asp#:~:text=The%20lipstick%20effect%20is%20when,from%20the%20lipstick%20effect%20tend

https://pmc.ncbi.nlm.nih.gov/articles/PMC9636953/#:~:text=consumers%20to%20spend%20more%20on,1

https://www.the-independent.com/life-style/lipstick-effect-recession-luxury-treat-spending-b2501493.html#:~:text=recession%20,”

https://www.loreal-finance.com/eng/news-release/2008-annual-results-difficult-environment-loreal-proving-resilient-and-continues-grow#:~:text=Increase%20in%20Sales%20to%2017,based%20on%20reported%20figures

https://www.zeit.de/wohlfuehlen/rauchen/Rauchkultur/seite-2#:~:text=Auch%20im%20ersten%20und%20zweiten,unterdrücken%20und%20Hungergefühle%20zu%20überdecken

https://medihair.com/de/statistiken-schoenheits-und-kosmetikindustrie/#:~:text=,bis%202022%20um%2015%20Prozent

https://cidw.de/wp-content/uploads/2025/01/250107_CHINAPOLITAN_Chinas-Vorbereitungen-auf-die-zweite-Amtszeit-von-Donald-Trump.pdf#:~:text=zurückhaltend.%20Der%20,China%20Film%20Administration%20ein%20Subventionsprogramm

https://www.capital.de/wirtschaft-politik/ceo-wechsel-bei-douglas--warum-der-lippenstifteffekt-tina-mueller-nicht-hilft--32838150.html#:~:text=geschwärmt,ihr%20der%20Lippenstifteffekt%20nicht%20geholfen

https://en.wikipedia.org/wiki/Military_chocolate_(United_States)#:~:text=rations%20%20since%20the%20original,The

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$ELF (+0,51%)
$OR (-0,77%)

Hello my dears,

As an Elf Beauty investor, I hope that a lot of money has flowed into Elf's sales.

But given the large sum involved, I fear that Loreal was able to profit here.

Taxpayers are paying for the federal government's make-up costs. According to a media report, there are now some figures on the balance sheet of the traffic light and the red-green minority government.

According to a media report, the traffic light government spent at least 538,000 euros on make-up between the beginning of 2022 and the end of 2024. However, as "Bild" reported, citing government figures, this calculation did not include the styling costs incurred between May and December 2024 for former Foreign Minister Annalena Baerbock and her team at the Federal Foreign Office.

Under the red-green minority government, at least another 49,646 euros were added between the beginning of January 2025 and the end of March 2025, according to the report.

According to the report, Baerbock and her department also spent a particularly large amount of money on make-up during these three months. They would have spent a total of 20,849 euros on make-up in these three months. That's 7440 euros a month. According to Bild, former Chancellor Olaf Scholz and the Chancellery spent 13,015 euros.

Otherwise, the female ex-ministers and their departments are far ahead. Lisa Paus (Greens) and the Ministry of Family Affairs contributed costs of 4287 euros, the Ministry of the Interior led by ex-minister Nancy Faeser (SPD) 3737 euros and the Ministry of the Environment led by ex-minister Steffi Lemke (Greens) 3554 euros. Bringing up the rear were the Ministry of Construction (1999 euros), which was led by Klara Geywitz (SPD) at the time, and the Ministry of Economic Affairs (598 euros) with Robert Habeck (Greens) at the helm at the time.

None of the other ministries provided any information, which is why the total costs are not complete. Costs for hairstyling, clothing and photographers are not included, it is further stated.

Merkel spent 3000 euros a month on a stylist

By way of comparison, while Baerbock and her team invested around €7440 per month in make-up in 2025, former Federal Chancellor Angela Merkel, for example, had accumulated costs of around €3000 per month for the federal government after leaving office in 2023 - not only for make-up, but also for her hairstyle, mind you. This also included the hotel and travel costs of her stylist.

The Taxpayers' Association had massively criticized the rising costs of top politicians' appearances in the past. In 2023, President Reiner Holznagel said that taxpayers could not be expected to pay for politicians' make-up artists and hairstylists.

And it is not only make-up costs that cost taxpayers a lot of money, but also photographers. At state level, for example, the Bavarian state government led by Minister President Markus Söder (CSU) has recently attracted particular attention. Under him, the costs for photographers had multiplied compared to his predecessor Horst Seehofer, reported Der Spiegel in 2023.

In the first four months of the year alone, the State Chancellery reportedly spent around 75,000 euros - and that was just for freelance photographers. A permanently employed photographer was also on the pay slip, it said. In 2022, Söder spent around 220,000 euros, more than twenty times as much as Seehofer, said former SPD parliamentary group leader Florian von Brunn at the time. (Tsp)

https://www.tagesspiegel.de/politik/baerbock-ganz-vorn-habeck-ganz-hinten-hunderttausende-euro-gab-die-ampel-furs-make-up-aus-14048525.html

$ULTA (+0,35%)

• Revenue: USD 2.85 billion (estimated USD 2.79 billion) ✅ +4.5% year-on-year
• Earnings per share: USD 6.70 (estimated USD 5.75) ✅
• Comparable sales: +2.9 % (compared to +1.6 % year-on-year)
• Gross margin: 39.1 % (compared to 39.2 % in the previous year)
• Inventory: USD 2.1 billion (+11.3% year-on-year)

Guidelines for the 2025 financial year:

• Sales: USD 11.5-11.7 bn (previously: USD 11.5-11.6 bn | estimate USD 11.58 bn)
• Earnings per share: USD 22.65-23.20 (previously: USD 22.50-22.90 | estimate USD 24.07)
• Comparable sales: 0 % to +1.5 % (previously: 0 % to +1 %)
• Operating margin: 11.7-11.8% (no change)
• Share buybacks: ~USD 900m (no change)
• New stores: ~60 | Conversions/relocations: 40-45
• Capital expenditure: USD 425-500m
• Tax rate: ~24.5
• Depreciation/amortization: USD 290-300m

Other key figures for the first quarter:

• Operating profit margin: 14.1 % (compared to 14.7 % in the previous year)
• Net income: USD 305.1 million (compared to USD 313.1 million in the previous year)
• Selling and administrative expenses: USD 710.6 million (increase of 6.7% compared to the previous year)
• Store space: 6 new stores opened; now 1,451 in total
• Share buybacks: USD 358.7 million repurchased in the 1st quarter
• Cash and cash equivalents: USD 454.6 million

Management:

• CEO: "The start to the 2025 financial year is encouraging thanks to the success of our Ulta Beauty Unleashed program. However, the outlook reflects the uncertainty regarding consumer demand. We remain focused and flexible."

$ELF (+0,51%)
$EL (+0,68%)
$OR (-0,77%)

$EL (+0,68%)

Hello everyone, I have 35 Estee Lauders$EL (+0,68%) in the portfolio and recently bought more. Am now 20% in the red? Because of the high level of debt, I am considering selling and switching to L'Oreal $OR (-0,77%) and switch to L'Oreal. From the chart, Estee looks like it has greater potential, but L'Oreal is much less indebted and has cash if things get rough over the next few months/years. What do you think?