eyeQ: a three-pronged approach to investing

“Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance.” eyeQ

• Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary

L’Oreal

Macro Relevance: 75%
Model Value: 346.46
Fair Value Gap: +3.99% premium to model value

Data correct as at 5 March 2025. Please click glossary for explanation of terms. Long-term strategic model.

Crudely there are three different ways to approach investing:

• Company fundamentals: bottom-up analysis of the individual company using metrics such as price/earnings (PE) and the like.
• Macro fundamentals: top-down analysis of the economy. Is the economy growing or contracting? Are the Federal Reserve, Bank of England or European Central Bank cutting interest rates or hiking?
• Technical analysis: do the charts suggest the stock is an uptrend, downtrend or choppy range? 

Ideally you want to incorporate all three elements into your investment process.

Indeed, the gold-plated signal comes when a stock is cheap from both a micro and macro perspective, and the charts suggest we’re at key support or embarking on a strong uptrend. When you see that, fill your boots!

Sadly, more often than not, markets are messier and these three approaches aren’t always aligned.

Analyst and ii contributor Rodney Hobson is constructive on L'Oreal SA (EURONEXT:OR) from the bottom-up point of view.

The macro view is slightly more cautious. eyeQ model value is around €346 - that’s where the stock “should be” given prevailing macro conditions.

The recent rally has run ahead of this, so L’Oreal screens as almost 4% rich on our metrics. That’s a modest valuation gap. Nowhere near enough to get bearish, but not the best entry level from a macro perspective either.

Two other considerations.

Macro relevance is high (75%), so the big-picture stuff is important right now. But you can see how noisy eyeQ model value has become over the past five months.

This is the Trump effect. Macro has become noisy - tariffs, trade wars, Department of Government Efficiency (DOGE) job cuts, deregulation, deportations, tax cuts, European rearmament, Gaza. The headlines are coming thick and fast, and this is making for a choppy, volatile environment.

In the three months since Trump won the election, eyeQ model value for L’Oreal has been chopping around in a €315-375 range. For macro to fire a bullish signal, we’d want to see model value break above that range. 

Finally, what could do that? The biggest driver of our model right now is the euro - L’Oreal wants a stronger euro. Sometimes companies which export want a weak currency to make their goods more attractive. But sometimes foreign exchange markets act as a barometer of economic confidence: a strong currency speaks to a strong economy.

There are signs that pattern is unfolding now.

The euro is starting to rally. Even with the prospects of tariffs, the foreign exchange market is focusing on European rearmament. Yes, first and foremost that benefits the Rheinmetall AG (XETRA:RHM)s, Saab AB Class B (OMX:SAAB B)s and BAE Systems (LSE:BA.)of this world. But there are signs markets see this as a boost to European economic growth more broadly. And, on current patterns, that’s good news for L’Oreal.

Source: eyeQ. Past performance is not a guide to future performance. 

Useful terminology:

Model value

Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.

Model (macro) relevance

How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.

Fair Value Gap (FVG)

The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.

Long Term model

This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.