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

Last Updated March 9, 2024 11:12 AM
Giuseppe Ciccomascolo
Last Updated March 9, 2024 11:12 AM

Key Takeaways

  • A group of 11 European stocks, nicknamed the “Granolas,” have been driving the European stock market’s gains in the past two years.
  • The Granolas have even surpassed the performance of the “Magnificent Seven,” a group of high-growth US tech stocks.
  • But the Granolas represent a diverse mix of sectors, including pharmaceuticals, and luxury goods.
  • Who’s the best buy opportunity?

Finance loves acronyms and Goldman Sachs has calculated  that 60% of the European stock market’s gains in the last two years have been achieved by the Granolas, 11 high-growth stocks. But Wall Street and artificial intelligence (AI) instead show off the Magnificent Seven, starting with Nvidia.

On the one hand the European stocks, on the other the fastest growing techs on Wall Street, driven by artificial intelligence and Nvidia. Both groups present notable returns and great attention from investors. But who should you bet on?

Who Are We Talking About?

Who exactly are the Granolas? They’re a select group of 11 European stocks that have been leading the charge in driving European stock markets upward. These include GSK, Roche Holding , ASML Holding, Nestlé , Novartis, Novo Nordisk , L’Oreal , LVMH , AstraZeneca , SAP, and Sanofi .

According  to calculations by Goldman Sachs, the investment bank that coined the term in 2020, Granolas accounted for a substantial 60% of the European stock market’s gains over the past two years as of mid-February.

Impressively, during this period, the performance of the Granolas even surpassed that of the much-lauded ‘Magnificent Seven’ stocks in the United States, which include Alphabet, Amazon.com, Apple, Meta, Microsoft, Nvidia, and Tesla.

Explaining Granolas

According to a recent report by Goldman Sachs analysts, who established the basket four years ago, the performance of the squadron of 11 European stars rivals that of its seven American counterparts.

In fact, they represent a quarter of the entire capitalization of the Stoxx600 index, mirroring the weight carried by the magnificent seven in the S&P 500. Moreover, akin to their American counterparts, they have delivered a comparable gain over the last three years. The Granolas have surged by 63% since January 2021, aligning closely with the performance of the American basket composed of Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla.

Notably, they exhibit much lower volatility compared to the seven US big tech companies. Unlike the US squad comprised solely of technology titles, the European team of 11 is notably diversified. Pharmaceutical stocks dominate, accounting for six out of eleven, with luxury brands L’Oreal and LVMH, Swiss food giant Nestlé, and European tech giants ASML and SAP rounding out the mix.

There is more than one common thread that unites this diverse group of companies. Meanwhile, the great financial solidity combined with constant growth over time and finally high profitability. The pharmaceutical industry generally has a solid pace over time. It is typically a value sector, characterized by a constant pace over time and high margins.

Pharma, Luxury, And Tech Among Best 11 In EU

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

Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.

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