The Magnificent 7 tech stocks have been the driving force behind the
S&P 500’s
rally to record highs. For investors feeling nervous about this top-heavy market dynamic, there’s a new group that may warrant a look: the GRANOLAS.
Coined by
Goldman Sachs,
the GRANOLAS represent some of the largest European companies by market capitalization:
GSK,
Roche,
ASML,
Nestlé,
Novartis,
Novo Nordisk,
L’Oréal,
LVMH,
AstraZeneca,
SAP,
and
Sanofi.
Their collective performance has been astonishing over the past few years, even if it hasn’t been nearly as eye-catching as the Magnificent 7, which includes
Microsoft,
Apple,
Alphabet,
Amazon.com,
Nvidia,
Tesla,
and
Meta Platforms.
The GRANOLAS accounted for 60% of all gains over the past year in Europe, where the stocks make up a quarter of the market capitalization of the pan-European Stoxx 600 index, Goldman Sachs analyst Guillaume Jaisson wrote in a Monday note. The 11 stocks are a key reason why European equities have performed well despite lagging economic growth in the region, Jaisson added.
“From a global point of view, the GRANOLAS have even outperformed the so-called Magnificent 7 over the past two years,” Jaisson wrote. “Their (out)performance is even more impressive on a risk-adjusted basis: with a volatility 2x lower than for the Magnificent 7.”
Indeed, the GRANOLAS have delivered better returns for less risk than the Magnificent 7, according to Goldman Sachs—and that’s not their only quality. While the group trades at a premium 20 times price-to-earnings ratio, it’s a 30% discount to the Magnificent 7—at 30 times—and below their historical discount. The GRANOLAS also offer an average dividend yield of 2.5%, which is much higher than the S&P 500’s average 1.5% and the meager 0.3% dividend offered by the Magnificent 7.
“The GRANOLAS exhibit qualities that we expect to predominate in this cycle: strong earnings growth, low volatility, high & stable margins, and strong balance sheets,” wrote Jaisson. “We think they also stand to benefit from the structural shift towards passive investment and the lack of liquidity in the European equity market.”
The GRANOLAS moniker sounds like more of a cereal category than a stock strategy, but if Goldman Sachs is right then these names might be worth a look for a balanced portfolio.
Write to Jack Denton at jack.denton@barrons.com
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