(News Bulletin 247) – A group of eleven European stocks made up in particular of L’Oréal, LVMH, Sanofi, Nestlé and AstraZeneca is designated by this acronym “Granolas”. These stocks generated 60% of the gains of the Stoxx Europe 600 in 2023 and have performed better than that of the “Magnificent Seven” of Wall Street since 2021, according to Goldman Sachs.

The Stock Market sometimes seems to be summed up by the flashiest acronym or nickname. For around fifteen years now, “Gafam” (Google, Amazon, Facebook, Apple, Microsoft) have invaded our daily lives. China, for a time, wanted to have its own Gafam with the “BATX”, that is to say Baidu, Alibaba, Tencent and Xiaomi. In France, the luxury stock market champions are designated by the acronym “KOHL” (Kering, L’Oréal, Hermès, LVMH).

Above all, the year 2023 saw the emergence of the “Magnificent Seven” of Wall Street, that is to say the Gafam to which Nvidia and Tesla were added. These seven values ​​alone or almost enabled the S&P 500 to register an increase of 24% in 2023.

But what about Europe? Can the Old Continent also count on a handful of champions? A priori yes. At least according to a note written Monday by Goldman Sachs. The American bank mentions “Granolas”, a word which refers to these crunchy oat mixtures enjoyed especially in the United States. Let us point out from the outset that the acronym refers to not eight values ​​but eleven, several values ​​”squatting” the same letter.

These are GSK (pharmacy), Roche (pharmacy), ASML (semiconductors), Nestlé (food industry), Novartis (pharmacy), Novo Nordisk (pharmacy), L’Oréal (cosmetics), LVMH (luxury). ), Astrazeneca (pharmacy), SAP (professional software) and Sanofi (pharmacy).

Goldman Sachs had actually used this acronym of “Granolas” as early as 2020, during the first confinement in Europe, to identify these capitalizations which were then the most important or almost at the time. Which probably explains the absence of Hermes in this group.

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Bigger than the CAC 40

These eleven stocks combined have a market capitalization of 2.922 billion

dollars (2,700 billion euros), i.e. more than the entire CAC 40 (around 2,500 billion euros). Their average capitalization is $265 billion. They also account for around a quarter of the weight of the Stoxx Europe 600, a pan-European index bringing together 600 heavy goods vehicles listed in Europe (including the United Kingdom).

Beyond their weight, Goldman Sachs also retained these values ​​for their profiles, typically “quality trades”. “Granolas exhibit qualities that we believe should predominate in this cycle: strong profit growth, low volatility, high and stable margins, and strong balance sheets,” explains the American bank. “We believe that they should also benefit from the structural shift towards passive investment (basically: ETFs, Editor’s note) and the lack of liquidity on the European equity market,” she adds.

Their average performance is enough to catch the eye. According to Goldman Sachs, 60% of the stock market gains of the Stoxx Europe 600 in 2023 were generated by these eleven stocks. “It is largely thanks to them that European stocks have performed well despite a sluggish domestic GDP,” asserts the American bank.

“More recently, these defensive growth companies have also benefited from moving bond yields and a strong earnings season, marked by positive surprises and upbeat forecasts from ASML, Novo Nordisk and SAP “, she adds.

Stronger than the Magnificent Seven

Louder still. On a 100 basis as of January 1, 2021, Granolas are almost putting the “Magnificent Seven” in the bag in terms of performance, with American tech groups having suffered greatly in 2022. Granolas grew by 63% over this period, which is almost the same (it is slightly better) performance than that of the seven “mercenaries” of Wall Street.

Certainly, these eleven values ​​have certain disadvantages. Goldman Sachs does not mention it itself, but the strong presence of pharmaceuticals (six stocks out of eleven) contradicts the principle of diversification of stock market portfolios. Even if these Granolas are, in essence, more diverse than the “Magnificent Seven”.

The American bank, on the other hand, emphasizes that these values ​​are expensive, their shares trading on average 20 times expected profits over one year. But as the establishment notes, this type of multiple is not uncommon for quality values, and the average turns out to be 30% lower than those of the “Magnificent Seven”.

More generous than the S&P 500

And then it is ultimately the price to pay to buy securities which combine both robust, predictable growth, “premium” margins and a defensive nature. “The consensus expects strong and continued growth in the years to come, with an average annual growth rate of 7% until 2025 for Granolas and less than 2% for the non-Granola market,” explains Goldman. Sachs.

“This suggests that, in Europe, almost all of the Stoxx 600 revenue growth will come from Granolas. We believe this development will be supported by high barriers to market entry for these companies, strong balance sheets and high investments – They reinvest the same share of their cash flow in R&D and capital expenditure for growth as the Magnificent Seven,” explains the American bank.

Last point: performance. These eleven stocks offer a dividend yield of 2.5%, more than the 1.5% of the S&P 500, and the 0.3% of the Magnificent Seven (several of which do not pay a dividend, such as Alphabet and Amazon). And Goldman Sachs added that in the future, “their dividends should continue to grow at a faster rate than profits, given that the payout ratio is still below the historical average.”