Title: The “Granolas”: Europe’s 11 Powerhouse Stocks Outperforming the Magnificent 7 in Market Rally
The past year has witnessed an extraordinary US market rally, with the Magnificent 7 tech stocks taking center stage. However, an equally impressive group of contact companies, named “Granolas,” has been driving up returns on the contact stock market with even better performance in certain metrics.
According to Goldman Sachs, these 11 companies, which include GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, and Sanofi, accounted for approximately 60% of the gains on Europe’s benchmark stock index over the past 12 months. They have also outperformed the Magnificent 7 to some extent in a longer-term comparison, Goldman Sachs reports.
Goldman Sachs analysts praised these companies’ strong earnings growth, low volatility, high and stable margins, and robust balance sheets in their recent note. Investors in the Granolas have enjoyed an average total return of 65% over the past three years, surpassing the 64% delivered by the Magnificent 7.
The Granolas are a diverse group, encompassing healthcare, tech, food, and luxury sectors. Their shares have collectively risen nearly 18% on an unweighted average over the past year, outperforming the pan-contact index’s 7.3% increase in the same time frame. Novo Nordisk, the Danish drugmaker, boasts the top performance among the Granolas with a 65% increase in stock value over the past year due to its successful weight loss drugs Ozempic and Wegovy.
Goldman Sachs anticipates that the Granolas will contribute almost all of the revenue growth for companies in the pan-contact index in the upcoming years. Their remarkable performance, however, could lead to concentration risks in contact markets.
Philip Lawlor, managing director of markets research at Wilshire Indexes, noted that investors, especially those using passive investing vehicles like exchange-traded funds (ETFs), would continue to allocate more capital to the 11 large companies at the expense of smaller firms. The Granolas represent nearly 20% of the combined value of all 600 companies in the Stoxx Europe benchmark, while the Magnificent 7 account for almost 30% of the S&P 500’s value.
The “self-fulfilling prophecy” of the Granolas’ success could result in a significant portion of passive investment flowing into these large stocks, potentially overshadowing smaller firms. Goldman Sachs also acknowledged this issue in their note.
The S&P 500 is experiencing a similar trend, with tech stocks dominating the index due to investor excitement around artificial intelligence, outperforming other sectors by a wide margin. The index has gained over 6% in 2023, while its equal-weighted version is up just 2.3%. Last year, the S&P 500 rose by 24.2%, while its equal-weighted version was up only 11.6%. Deutsche Bank analysts highlighted this disparity in a recent note.
In conclusion, the Granolas are proving to be major contributors to the contact stock market’s success, outperforming the Magnificent 7 and driving up returns. However, their remarkable performance could lead to concentration risks for contact markets, potentially overshadowing smaller firms and leading to a self-fulfilling prophecy.
