Markets have a short memory. In the rush toward everything artificial intelligence (AI), some of Europe’s most dependable companies have slipped from view. Looking through our compounding growth lens, stocks such as Roche, LVMH, L’Oréal and Deutsche Börse now represent something rare: high-quality businesses at reasonable prices.
Our philosophy is straightforward but currently unfashionable. We focus on firms with durable competitive advantages, consistent returns on capital, strong cash generation and disciplined reinvestment.
These are not the headline-grabbing disruptors of the moment. They are steady compounders that weather crises, protect dividends and grow quietly through patient execution.
Quality under a cloud
Few firms embody European quality as clearly as Roche. Its twin engines of pharmaceuticals and diagnostics create a base of recurring revenue that is hard to replicate. Yet the market has turned cold. Concerns about slowing growth and patent expirations have left the shares at multi-year lows.
Our perspective is that healthcare companies like Roche are built for resilience. They possess research depth, pricing power and balance sheets that can absorb short-term pressures.
Investors have priced Roche as if it were a cyclical manufacturer as opposed to a global healthcare leader. Meanwhile, the company continues to produce steady cashflow, maintain investment in its pipeline and pay a reliable dividend. The gap between perception and reality has rarely been wider.
Innovation hidden in plain sight
In consumer goods, L’Oréal remains an extraordinary case study in long-term value creation. The group’s blend of scientific innovation, global brands and disciplined marketing has made it the world’s leading beauty company. Despite this, its share price has softened as growth in China and travel retail has slowed.
For quality investors, that weakness is appealing. L’Oréal’s business model is built on innovation and diversity. Its dermo-cosmetics arm offers defensive growth, while luxury and professional segments deliver higher margins.
Few companies balance volume stability and pricing power so effectively. This is not a business in decline but one temporarily overlooked amid cyclical headwinds.
A luxury giant reassessed
The story is similar for LVMH. The company dominates global luxury through a portfolio that stretches from Louis Vuitton and Dior to Moët and Tiffany, but the stock has lost momentum as the luxury cycle cools and Chinese demand falters.
It is easy to forget that LVMH has weathered similar slowdowns before as its control over distribution, brand equity and pricing gives it exceptional flexibility.
The management’s focus on long-term brand stewardship, rather than quarterly targets, ensures resilience when consumer sentiment dips. The market’s impatience has created a valuation gap and, while luxury demand will ebb and flow, LVMH’s ability to sustain margins and expand into new categories makes it one of Europe’s most durable franchises.
The quiet powerhouse
The least glamorous of the group, Deutsche Börse is also among the most enduring. As the operator of the Frankfurt Stock Exchange and the Clearstream settlement network, it earns recurring fees that are largely immune to economic cycles.
Recent years have seen it transform from a traditional exchange operator into a broader financial-data and analytics business.
The 2024 acquisition of SimCorp further added high-margin software capabilities, moving Deutsche Börse up the value chain. While investors have gravitated toward faster-growing US peers, the company continues to post solid double-digit returns on capital, rising free cash flow and a reliable dividend.
It is a business that delivers quietly in the background, exactly the sort of dependable compounder the market tends to overlook.
Why the market misprices quality
Europe’s most reliable companies are being treated as yesterday’s stories simply because their growth rates are modest, despite these being precisely the businesses that protect capital when cycles turn. They do not rely on cheap financing or speculative demand and advantages are structural, not seasonal.
Our approach is to let time do the heavy lifting. By focusing on valuation, cashflow and reinvestment capacity, it seeks to hold businesses through the noise of market fashion.
Today, that lens points toward opportunity in Europe’s forgotten champions. Roche, L’Oréal, LVMH and Deutsche Börse share three qualities: strong economics, careful capital allocation and temporary neglect.
Their fundamentals remain intact but investor enthusiasm has shifted elsewhere. For those willing to wait, that combination of quality and pessimism could be a golden opportunity.
Europe’s quiet quality has not disappeared, it has simply been overlooked. And for patient investors, that is exactly where enduring value is found.
Ben Peters is portfolio manager of the Evenlode Global Income fund. The views expressed above should not be taken as investment advice.