The tech sector has undoubtedly been the driving force behind the S&P 500’s recent record-breaking rally. However, investors who are wary of this top-heavy market dynamic should pay attention to a new group of companies known as the GRANOLAS.
Coined by Goldman Sachs, the GRANOLAS consist of some of the largest European companies in terms of market capitalization. These powerhouses include GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, and Sanofi. While their performance may not be as flashy as the famous Magnificent 7 (Microsoft, Apple, Alphabet, Amazon.com, Nvidia, Tesla, and Meta Platforms), the GRANOLAS have delivered astonishing results over the past few years.
According to Goldman Sachs analyst Guillaume Jaisson, the collective performance of these companies has accounted for an impressive 60% of all gains in Europe over the past year. Remarkably, these 11 stocks make up a quarter of the market capitalization of the pan-European Stoxx 600 index. Jaisson notes that their success has played a significant role in driving the resilience of European equities, despite slower economic growth in the region.
As investors continue to navigate through a rapidly changing market, keeping an eye on the rise of the GRANOLAS could offer a fresh perspective and potential opportunities for those seeking diversity beyond the dominant tech stocks.
GRANOLAS: A Promising Investment Strategy
According to Goldman Sachs, the GRANOLAS have proven to be more successful than the well-known Magnificent 7 over the past two years. Not only have they outperformed their counterparts, but they have also displayed impressive risk-adjusted performance with half the volatility.
But that’s not all. The GRANOLAS offer investors better returns with lower risk compared to the Magnificent 7. Trading at a modest price-to-earnings ratio of 20, they are actually a 30% discount to the Magnificent 7, which trade at a lofty 30 times. Moreover, this discount is below their historical average. Additionally, the GRANOLAS provide an attractive average dividend yield of 2.5%. This is substantially higher than the S&P 500’s average of 1.5% and dwarfs the meager 0.3% offered by the Magnificent 7.
These impressive qualities make the GRANOLAS stand out as a promising investment option. Boasting strong earnings growth, low volatility, high and stable margins, as well as robust balance sheets, they possess attributes that are expected to dominate in this economic cycle. Furthermore, they are well-positioned to benefit from the ongoing trend towards passive investment and the scarcity of liquidity in the European equity market.
While the name “GRANOLAS” may evoke thoughts of breakfast cereal rather than a stock strategy, investors would be wise to consider these companies for a diversified portfolio.