Granolas – the Magnificent Seven of Europe

Last update: 17.09.2024 08:31

Granolas are not just delicious muesli. They are also a dynamic stock eleven from Europe that can compete with the Magnificent Seven from the USA. What makes granolas so special? And why do more and more investors see them as a relevant investment option? Get a deep insight into the world of granolas in this article.

The Granolas are a group of eleven European equity heavyweights. The name GRANOLAS is an abbreviation of the initial letters of these companies. The name was coined by Goldman Sachs in a research report on April 28, 2020.

In the report, the bank’s strategists wrote: “In the US, the technology sector is likely to remain the long-term winner. In Europe, it is more likely to be a combination of structurally strong and/or stable sectors: Healthcare, Consumer Staples and Technology. We have named the largest stocks in these sectors the “GRANOLAS”: GlaxoSmithKline, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, Sanofi. They may not ALL do well, but they generally have some growth and/or stability in earnings and an annual return in the 2 – 2.5% range”.

As previously mentioned, the Granolas include eleven companies: GSK (GlaxoSmithKline), Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP and Sanofi. They come from various sectors such as healthcare, consumer goods, technology and luxury goods.

An investment in a basket of these eleven shares at the beginning of 2021 has brought you a gain of 65.7% three years later. In a report from March 2024, Goldman Sachs therefore states: “Since 2021, the eleven stocks have also achieved the same performance as the highly praised Magnificent Seven from the USA. At the same time, their prices have fluctuated only half as much. In Goldman’s view, the Granolas also have good prospects for the future. This is because they invest three times more in their growth than the market and are reasonably valued at 20 times their earnings.

Overall, the Granolas offer investors the opportunity to invest in high-quality, high-growth and relatively low-valued companies from Europe. They are also less volatile than US technology stocks. They offer investors several advantages over other stocks or the Magnificent Seven.

The Granolas companies have above-average earnings growth. Analysts who follow Granola shares expect a compound annual growth rate (CAGR) of 7% until 2025. In comparison, they expect the rest of the market (STOXX 600) to grow at less than 2%.

The Granolas have high profit margins and robust balance sheets, which underlines their profitability and financial strength.

Compared to the US technology shares (“Magnificent Seven”), Granolas shares have a significantly lower price fluctuation range (volatility). This is easy on your nerves.

Despite their qualities, the Granolas are trading at a valuation discount of around 30% compared to US technology stocks . They are therefore valued more favorably.

Unlike the Magnificent Seven, which focus on the technology sector, the Granolas cover various sectors. The sector diversity is high: the list mainly contains companies from the healthcare (32%), defensive consumer (26%), cyclical consumer (29%) and technology (14%) sectors. This brings good diversification to the portfolio. The granolas include global market leaders in their respective sectors, such as Nestlé for food, LVMH for luxury goods, L’Oréal for cosmetics and Novo Nordisk for diabetes. They also include some of the world’s largest pharmaceutical companies, primarily Roche.

Granolas account for around a quarter of the market capitalization of the STOXX 600. They contribute around 60% to its price gains in 2023, which underlines their importance for the European equity market.

So far, there are no ETFs that focus on granolas. So you have no choice but to put together your own granola portfolio from individual stocks with the same weighting.

Alternatively, you could buy a sector ETF on the pharmaceutical industry and hold the other Granolas as individual stocks. This is because six of the eleven Granolas belong to the pharmaceutical industry: Novo Nordisk, Novartis, AstraZeneca, Roche, Sanofi and GSK. These are also the six largest positions in funds such as the SPDR MSCI Europe Health Care UCITS ETF (EUR) or the iShares S&P 500 Health Care Sector UCITS ETF (USD).

In a report published in March 2024, UBS identified“Europe’s Magnificent Seven”. These stocks are a different selection to the Granolas. From UBS’s perspective, ASML, Ferrari, Hermès, L’Oréal, LVMH, Novo Nordisk and Siemens make up the “European Magnificent Seven”. We are already familiar with some of these companies from Goldman Sachs’ Granola selection.

UBS believes that all seven companies offer unique business models and market positions that should enable them to deliver superior long-term revenue and earnings growth compared to the broader European market. It sees these stocks as high-quality growth stocks that can help investors diversify their portfolios beyond the technology sector. The companies are typically leaders in their global market segments and offer strong business models and excellent innovation.

According to UBS, these companies not only have strong brands and pricing power, but are also likely to achieve stable profit growth and sustainable free cash flow in the long term.

Regardless of whether you invest in Granolas (Goldman Sachs) or the “European Magnificent Seven” (UBS): With this stock selection, you can invest in high-quality, high-growth companies with relatively low valuations. In the past, their share prices have also fluctuated less than those of US technology stocks. You are thus making a conscious stock selection that can – but does not have to – succeed. This selection contradicts one of our investment principles, namely buying markets rather than individual stocks. Nevertheless, it has proven its worth in recent years.

Unfortunately, however, you can’t invest in all these securities at once with 1 ETF. So if you want to invest in Granolas, you have – so far – had to buy individual stocks. Will the glorious seven from Europe continue to score in the future? Only time will tell.

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