How to buy shares

"Lipstick effect": No matter how big the crisis – lipsticks are always bought

The Corona fear has a new name: Omikron. On the stock market, the novel variant of the Covid 19 pathogen, which was first detected in southern Africa and is now appearing in more and more countries, caused a real sell-off last Friday. The Dax closed the trading day down by more than 4 percent, while the U.S. blue chip index Dow Jones still lost 2.5 percent in the end.

Today, Monday, while investors are trying their hand at optimism. What does seem clear, however, is that nervousness on the stock market with regard to the pandemic has again increased significantly with the appearance of the new virus variant. How contagious is the mutant? How badly it can harm infected people? And most importantly, how effective are existing vaccines against it – or are new vaccines even needed? These questions are currently unanswered, and as long as there are no answers to them, Omikron can cause further turbulence on the stock market at any time.

What this means for different industries should be clear after more than a year of Corona crisis. The winners and losers of measures such as restrictions on air traffic and travel or extensive lockdowns have clearly emerged on the stock market over the past few months: Aviation and tourism stocks and brick-and-mortar retail, for example, naturally fare poorly. Among the profiteers, on the other hand: Video communications providers like Zoom or Microsoft (with its Teams software), whose services are in demand in the home office, online retailers like Amazon, delivery services like Hellofresh or Delivery Hero and, of course, developers and marketers of vaccines. The shares of the Mainz-based biotech company Biontech, for example, have been skyrocketing since Friday.

Price gains thanks to the "lipstick effect

But by no means all industries and companies fit into this familiar pattern of Corona winners and losers. In many sectors of the economy, the pandemic has double-edged consequences, leading to advantages and disadvantages in equal measure. In addition, there are areas of the economy that are developing in a completely different way than might be expected at first glance. The latter may be particularly exciting from an investor’s point of view. For those who are correctly positioned in time may achieve returns that many other investors miss out on.

One example is the Cosmetics industry. The common thinking would be: If millions of people go home for months at a time (as is likely to be the case in Germany in the near future), and if, in addition, social gatherings, such as at parties, in restaurants and pubs, or in clubs and discos, are severely curtailed, then this should affect sales of cosmetics.

However, the reality is different. It is true that sales of particularly luxurious cosmetics suffer in a pandemic environment because a large proportion of these are sold at airports. At the same time, however, there is a phenomenon that stock market experts call the "lipstick effect Even in times of crisis, when people do without (or have to do without) many things in their daily lives, they still buy lipstick. For example, sales of basic beauty products such as lipstick and makeup declined in the uncertain period following the terrorist attacks of 11. September 2001 by no means declined – in fact, it rose.

Car manufacturers defy the odds

In addition, many cosmetics companies, such as the French L’Oreal Group, now also do part of their business with skin care products. In any case, in the Corona year 2020, industry giants such as L’Oreal and its US competitor Estee Lauder performed remarkably well. Stocks quickly recovered the losses they posted in the initial crash of spring 2020. In recent months in particular, both papers have risen to historically high levels.

Also doing better than recently thought in the Corona crisis is currently the Auto industry as. First came the forced production pauses in the wake of the 2020 Corona lockdowns, then the chip shortage hit with full force, resulting in significantly fewer cars manufactured in the industry. So manufacturers have had plenty of reason to complain in recent months. However, what has received less attention in all the discussions about shortages, stressed logistics chains and production stoppages: The big automakers, especially the premium brands, are coping with the uncertainties much better than originally expected – and are surprising with record profits instead of tamping down forecasts.

BMW, for example, increased its operating profit by 38 percent to around 2.9 billion euros in the third quarter, even though the Bavarians sold 15 percent fewer cars. The situation is similar at rival Daimler: The Swabians sold a quarter fewer cars than in the same quarter last year, but consolidated earnings rose by a fifth to around 2.6 billion euros. At Volkswagen, there was recently a slight decline in profits, but in the fourth quarter, the Wolfsburg company expects a "clearly positive result compared to Q3" and want to be in the "full year 2021 in sales above the previous year".

Even though Wolfsburg’s operating return will be only 3 percent this year, it is expected to be 6 percent by 2023. Overall, the 16 largest car manufacturers in the world have generated more profit in the past quarter than ever before, shows a study.

The reason for optimism despite all the difficulties: According to their own statements, the car manufacturers succeeded through the bank in reducing fixed costs. And they are all helped by the currently very high prices on the used car market. Since delivery times for new cars are currently very long, many customers are switching to young used cars. And they currently cost partly as much as new cars. Because the Corona pandemic has increased interest among many in a semi-virus-proof means of transportation.

Hope for the office comeback

The side effect of the supply bottlenecks for new cars caused by the semiconductor shortage, which is not exactly unpleasant for the carmakers, is that there are currently no discount battles for new cars, the price enforcement power of the carmakers has increased. And this is likely to remain the case for a while – which is why the carmakers are likely to win for the time being even if the Corona crisis flares up again. Unless the groups have to cut back production again due to the spread of the new omicron variant and close plants, for example – that would probably change the situation fundamentally.

Finally, a bit of speculation: Even companies that make their money by investing in and operating Office properties could be an attractive investment. Again, this would be counterintuitive; after all, there is every indication that the trend toward home offices will continue, at least in part, through the pandemic. So, conversely, the demand for office space should hardly increase.

On the one hand. On the other hand, it is conceivable that people in offices will continue to attach importance to greater social distance in the future. Possibly something like this will even become a rule. Existing office space would hardly grow at the same rate – so would suddenly gain in value.

Office real estate companies such as Alstria Office Reit AG, Hamborner Reit AG or DIC Asset did not perform strongly during the corona crisis. All three papers have performed weaker than the overall market since spring 2020. It is conceivable, however, that companies with this business model, of all things, will prove to be late Corona winners.

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