European GRANOLAS Match Tech Titans in Market Performance, Offering Lower Volatility and Attractive Valuation

Key Takeaway

• GRANOLAS stocks matched the Magnificent Seven's 63% return since January 2021, with half the volatility, offering a less risky investment option.
• Trading at 20 times earnings, GRANOLAS present a more attractive valuation than the tech giants' 30 times, despite being premium within Europe.
• Despite strong performance and lower risk, there's no dedicated ETF for GRANOLAS, requiring individual stock investments.

European Giants GRANOLAS Match Tech Titans in Market Performance

In the dynamic world of stock markets, a group of European companies, collectively known as GRANOLAS, has been making headlines for matching the performance of the highflying tech giants, often referred to as the Magnificent Seven. The GRANOLAS, an acronym coined by Goldman Sachs in 2020, includes some of the largest European firms: GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, and Sanofi. This diverse group spans various industries, from pharmaceuticals to luxury goods, and technology to consumer goods.

Performance and Volatility: A Comparative Analysis

Since January 2021, the GRANOLAS have shown a commendable total return of 63%, keeping pace with the Magnificent Seven—Amazon, Apple, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla. Notably, the European group has exhibited significantly lower volatility since 2018, with average fluctuations being roughly half of what the tech giants experienced. This stability, coupled with strong returns, highlights the GRANOLAS as a potentially less risky investment alternative to their American counterparts.

Valuation and Market Perception

Despite their impressive performance, the GRANOLAS trade at a more attractive valuation of 20 times earnings compared to the 30 times earnings valuation of the Magnificent Seven. However, it's important to note that within their own market, the GRANOLAS are considered more expensive compared to the broader European market average. This premium is attributed to their strong and predictable growth trajectories, as pointed out by strategists led by Guillaume Jaisson. The group's ability to maintain growth and stability has made them a premium choice for investors seeking reliable investment options.

Quarterly Highlights and Future Outlook

The fourth quarter has seen notable achievements within the GRANOLAS group, with Novo Nordisk's success in weight-loss drugs and ASML's surge in demand for microchip-equipment making machines standing out. However, L’Oréal faced challenges, particularly in the Chinese market, which impacted its performance. Despite these mixed results, the overall strong quarter underscores the group's resilience and potential for sustained growth.

Looking ahead, the strategists suggest that the GRANOLAS stocks are particularly appealing when global GDP growth is projected to be below 3%, a scenario expected over the next five years. This perspective positions the GRANOLAS as a strategic choice for investors anticipating slower global economic growth.

Investment Access and Opportunities

Interestingly, despite the attention the GRANOLAS have garnered, there is no dedicated exchange-traded fund (ETF) available for investors wishing to capitalize on this theme. This means that investors interested in gaining exposure to the GRANOLAS would need to invest in each company individually, a factor that may influence investment decisions.

In conclusion, the GRANOLAS group presents a compelling investment narrative, balancing strong performance with lower volatility compared to the tech-heavy Magnificent Seven. Their premium valuation is justified by predictable growth, making them an attractive option for investors navigating the complexities of the global stock market.

Street Views

• Guillaume Jaisson, Goldman Sachs (Neutral on GRANOLAS):

  "In our view, the reason why this group of stocks trades at a premium to the market is that they offer strong (and predictable) growth."

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