Granolas vs. Magnificent Seven: Who’s The Best Bargain?

For instance, British pharmaceutical giant Glaxo closed 2023 boasting a robust gross margin of 34% and an operating profit equivalent to 26% of its revenues. Over the past five years, its EBITDA consistently exceeded 30% of revenues, signaling sustained and significant industrial profitability over time.

Similar levels of industrial profitability are observed among other European pharmaceutical powerhouses: AstraZeneca maintains an EBITDA margin of 33%, Roche stands at 34%, and Swiss multinational Novartis surpasses 37%.

However, the true standout within the sector and among the 11 champions lies in the remarkable achievement of Novo Nordisk. Its ascent in both stock market value and balance sheet fundamentals is attributable to the success of its innovative obesity drug. Novo Nordisk developed it in collaboration with American firm Eli Lilly and witnessed robust sales in the US market.

The introduction of this groundbreaking drug has transformed Novo Nordisk, which previously focused solely on low-cost insulin medications. Since its launch, the company’s trajectory has been nothing short of meteoric.

Novo Nordisk’s market capitalization soared by over 60% in the past year. Not only, but it almost tripled since the beginning of 2022, reaching a staggering €499 billion. This exceeds the market value of the esteemed luxury conglomerate LVMH, despite LVMH having a turnover three times larger than Novo Nordisk.

Standard Bearers Of Luxury

Both L’Oreal and LVMH are among the standard bearers of the luxury sector.

LVMH has experienced remarkable growth in recent years, with turnover increasing from $53 billion to $86 billion over the past five years. Net profits have doubled from just over $7 billion in 2019 to $15 billion in 2023. The company maintained industrial margins of around 30%.

On the stock market, the Bernard Arnault-led conglomerate has nearly tripled its prices since the onset of the pandemic. L’Oreal, another major Paris-listed company, boasts slightly lower margins than LVMH. But still achieves impressive net profits equivalent to 15% of its turnover. With revenues climbing by 30% since pre-Covid times, L’Oreal has seen a significant 90% increase in stock market value over the last five years

Tech Members Of The Elite Group

For European hi-tech, two stocks stand out in Goldman Sachs’ basket, the German SAP and the Dutch Asml.

The Dutch chip manufacturer has an EBITDA weight on revenues of 35% from 27% five years earlier. With revenues jumping from 12 billion to 27 billion in the last five years. It closed 2023 with net profits of $7.8 billion on just over $27 billion in turnover, with an incidence of 28%.

Great net profitability and a stock market performance that was over 400% compared to the pre-Covid situation. Slower pace and lower profitability for the German SAP active in advanced software.

The industrial margin is worth 25% of the turnover which has grown by 20% since 2019. On the stock market, Sap has appreciated by 80% in the five-year period and by 60% in the last year.

Granolas Vs. Magnificent Seven

The theme of valuations lingers in the backdrop following the stock market triumphs. Are we witnessing pricey stocks reminiscent of their Stars and Stripes counterparts, hinting at a potential bubble waiting to burst? Deciphering this puzzle remains challenging.

Upon examining multiples and anticipated growth, it’s evident that the 11 continental champions hold lower valuations compared to their overseas counterparts. The European champions boast an average price-to-earnings (P/E) ratio of 19, whereas their US counterparts command a significantly higher ratio of 33 times.

However, to rationalize the premium on profit multiples, it’s worth noting that they anticipate double the growth in revenues and profits compared to their European counterparts.

In a nutshell: Granolas stocks offer a moderate growth rate but are quite cheap to buy. On the other hand, Magnificent Seven stocks are much more expensive but the market expects them to grow rapidly. Obviously, before entering the market, do your research and decide how to invest based on your risk appetite and investment capacity.

Disclaimer

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