Goldman Sachs highlights the leaders of the European market, nicknamed the “GRANOLAS”, echoing the “Magnificent Seven” of Wall Street. With a combined market capitalization exceeding €2.6 trillion, these companies continue to dominate sectors and outperform European markets.
Goldman Sachs has highlighted the European stock market champions with a particular nickname: the GRANOLAS.
The label was inspired by the “Magnificent Seven” of the American market – the tech giants who rule Wall Street. It refers to a select group of European heavyweights, including GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP and Sanofi.
These companies, with a combined market capitalization exceeding €2.6 trillion, have eclipsed the performance of the broader European stock market in recent years.
The rise of GRANOLAS
GRANOLAS represent approximately a quarter of the market capitalization of the STOXX 600 and is equivalent to the total market capitalization of heavy sectors such as energy, basic resources, financials and automotive.
Reflecting on changing trends in the European market, Goldman Sachs noted a significant shift from traditional industry leaders like telecommunications and oil two decades ago, to a broad range of sectors today.
“Twenty years ago, in the early 2000s, the 10 largest European companies in terms of market capitalization were all telecommunications and oil companies, with the exception of HSBC. If we think about the crisis of Covid, there were no banks, or oil, or telecommunications companies among the 10 largest in Europe,” wrote Goldman Sachs analyst Peter Oppenheimer in a note to clients on Monday.
Over the last twelve months, GRANOLAS generated more than 500 billion euros in revenue, an annual increase of 8%.
“It is largely thanks to them that European stocks have performed well despite mediocre domestic GDP,” noted Goldman Sachs.
They have averaged a 15% gain over the past year, outpacing the STOXX 600’s 5% and contributing 60% of the index’s overall growth.
Less “expensive” than Magnificent Seven
GRANOLAS currently trades at a price-to-earnings (P/E) ratio of 20x. Although it trades at a premium to European markets, this value is common for growth companies and is at a 30% discount to the US “Magnificent Seven”, which trade at a P/E of 30x .
“GRANOLAS focuses on shareholder value and pays a relatively high dividend,” Goldman wrote.
At 2.5%, GRANOLAS’ average dividend yield far exceeds the S&P 500’s yield of 1.5% and eclipses the Magnificent Seven’s 0.3%.
Consensus forecasts call for robust growth for these companies, with an expected compound annual growth rate (CAGR) of 7% through 2025.
Navigate with caution in international waters
GRANOLAS tackle some of the most promising structural themes, such as population aging, advances in AI and robotics, and ESG (environmental, social and governance). They shine with their high dividends, solid growth prospects and broad international reach.
Their fortune is not without risks, however.
With less than 20% of their revenue coming from Europe, their destiny is closely linked to the dynamics of the global market. Currency fluctuations, particularly a stronger euro, could affect GRANOLAS more than other domestic and European small-cap stocks.
A 37% market exposure to the U.S. economy introduces tariff risks, especially if a protectionist-leaning Republican presidency led by Donald Trump wins the election.
Yet with considerable U.S.-based assets, Goldman believes GRANOLAS could weather such storms. The high exposure to the Chinese market of LVMH, L’Oréal and ASML adds a complex layer of risk due to geopolitical tensions between Europe and China.
Given that these European giants hold a significant share of the market, investors would do well to proceed with caution. A high concentration on a few stocks could lead to a sharp correction if market sentiment changes.
In conclusion, the success story of GRANOLAS is undeniable, illustrating the prowess of Europe’s best in the global market. Yet the very factors that make them attractive – robust dividends, strong growth forecasts and international reach – also weave a tapestry of risks that investors must manage with caution.