Are consumer stocks really coming back in vogue ?

August 25th, 2025

It feels like a century ago, when analysts and investors were infatuated with European consumer stocks. But it was just four years ago, when the likes of LVMH, Nestlé, Diageo, L'Oréal enjoyed premium valuations as investors were blinded by their explosive growth during the pandemic which they extrapolated it to infinity. We too fell victim of some of these names, but at least we bought them when they had already corrected significantly from their peaks, but even that was not good enough, as they continued to correct. European consumer names, with just a handful of exceptions, have now fallen into the "plague" category, i.e. an un-loved and under-owned part of the market, with valuations as low as ten or twenty years ago. We almost feel embarrassed just talking about them.

The reasons behind this under-performance are easily explained. For one, the 2020-2021 growth numbers were erroneously thought to be sustainable. Then, momentarily the inflation spike of 2022 helped the revenues of such companies as lower volume growth was compensated by large price increases. Actually, had it not been for these price increases we might have not seen so high inflation. Then as companies started losing their pricing power in 2023, cracks in the investment case appeared. Their 10%-20% growth during the pandemic and 5%-10% in 2022 helped by price increases became negative in 2023-2025. This gradual drop in annual growth rates had started being reflected in their share prices, amidst downgrades by analysts. At the same time, the war in Ukraine and the AI/electrification theme gave the markets plenty other ideas to focus on. Then came the huge German infrastructure bill, with industrials and other related sectors having their own time in investment history and consumer names were at the bottom of a stock picker's list.

But there is always the point of "enough is enough". As mentioned in the beginning, some of these under-owned companies have fallen to valuations not seen in a decade, while their brand values and balance sheets remain as strong as ever. Analysts and media must always find an explanation for their daily commentary, so the themes that we have been reading and listening to for more than two years now are "luxury fatigue", " healthy eating and drinking is the new norm", "younger generations do not like consuming" etc. to explain the demise of the sector. Admittedly, there is a snippet of truth in all these concerns that have kept investors away. But we are not so wise or brave to make such bold statements, forecasting the "death" of jewelry manufacturers, chocolate makers, and tequila producers , as their valuations and the headlines would suggest. In any event, we do know that the largest and wealthiest generation is the Boomers whose consuming habits have not changed, as well as the ever increasing middle class in emerging markets in Asia, Africa and Latin America will consume, drink and eat. Hence, we have always kept our positions in the highest quality names in this wide sector of consumer goods.

The catalyst for our weekly cover story was the brutal rotation into European consumer names and out of defense stocks, which took place. This left investors asking what happens next. At some point there is another "fatigue", which is called "seller fatigue", when positions have been wiped out, institutional money is crowded in other trades and valuations (as well as dividend yields) can no longer be ignored. Was last week was a wake-up call or simply a short-term nightmare for those who have bought the big 2024-2025 winners at the recent highs ? In short , we do not know. But we know that themes change fast since the pandemic and the market surprises are frequent. In a similar way as these very consumer names in 2020, defense and some industrial/infrastructure companies have been bid up by analysts and investors, pointing to a growth that will continue to be strong for many years ahead. Dedicated ETFs have been popping in the last 6 months (always a bad sign, if you can still remember the BRICs and the Clean Energy theme more recently) dragging retail investors and momentum chasers into them.

But for European consumer names to sustainably out-perform in the next 12 months, a few conditions must be met. First and foremost, the investment community must be convinced that growth in their beloved themes is slowing from explosive levels to lower ones, and that their valuations are high. The recent disappointing (vs analysts consensus, not in absolute terms) orders guidance of a few defense companies has already set the stage for that. Then the AI theme must start having cracks, which already has happened with DeepSeek earlier in the year and the bomb dropped by ChatGPT creator, Mr. Altman, who said last week that AI stocks appear to be in a bubble. But the most important factor would be a healthy macro-economic environment and consumer confidence to move higher, while interest rates to remain low or even move lower. On these two issues, we had good news last week, as will be highlighted below.

The Eurozone Composite PMI rose by 0.2 points to a 15-month high of 51.1, exceeding consensus expectations of a decline to 50.6. Surprisingly in light of the recent US-EU trade deal, which implies additional headwinds for the Eurozone export sector, the increase was driven by the manufacturing sector, which registered a new high since late 2022, when the inflation surge was about to hit the global economy. This is good news for consumer goods companies. On the services side, employment and new business improved, but future expectations were weaker, with the index dropping to 50.7 from 51.0 last month.

The FED cemented the September rate cut, at the Jackson Hole conference. In his last speech at this beautiful Wyoming location, Mr. Powell, said that economic risks have shifted from inflation to the labor market, which is in stark contrast with what he said during the press conference of their last meeting. Of course, as we said last week, the ugly jobs report came after the FED meeting and already two members had dissented, by voting in favor of a 25bp rate cut., for the first time since 1993. This week's data from the continuing jobless claims which jumped 1.97mn, the highest level since before the pandemic (leaving aside the distorted figures during the pandemic lockdowns) seems to have convinced the FED to start cutting again. Markets cheered.

In other significant news, there were developments with respect to digital assets. The US Congress passed the Genius Act, a law that aims to regulate digital currencies and which will pave the way for banks to launch their own digital assets. For now, there is just a handful of private companies that have launched these stable-coins, i.e. digital tokens whose value is pegged to the USD and they are backed by holdings of US treasuries. Central banks globally have taken notice. Of course this is not something new as China has already launched the digital Yuan, and the UK is also on track to crate the digital pound. But there were also reports last week that the ECB is accelerating its own effort on the subject of a digital EUR.

The reason we are mentioning this is that demand for this kind of assets has an important side-effect on the bond market, as the creation of new coins must be accompanied with the purchase of risk-free bonds. This is music to the ears of the US administration whose ever increasing government debt and fiscal deficit has already prompted foreign governments, corporates and individuals to scale down their purchases. The demand of US treasuries by stable-coins has put a temporary lid on US yields as these flows have replaced and perhaps surpassed the international flows. Were the same to take place in Europe, the current levels of the EUR bonds can now be considered attractive again for purchases, especially if we see a further attempt for the 10yr German yield to knock on 3%'s door.

Chart of the Week : Consumer names have been out-performing since the start of the quarter (but few noticed).

In the above table we show the performances of the top-10 stocks in the Euro Stoxx 50 index, since July 1st. In yellow we have highlighted the consumer goods companies and as we can see, these companies comprise the overwhelming majority of this top-ten list. What we can also note is that the performance on a year-to-date basis is still dismal for most of these stocks, compared to the index and compared to the market's darlings which have been banks, infrastructure and defense companies, until now. We can conclude that if the rotation into consumer names becomes a consensus theme for the next 3-4 months, then the upside is still very significant, as there is a lot of lost ground to be recovered.

Disclaimer

• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : KSH/FactSet, Photo Copyright: William Barton