Comparing the Performance and Risk of this Stock Group with the Magnificent Seven
For years, investors have been captivated by the performance of the tech giants known as the Magnificent Seven. Companies like Amazon, Apple, and Microsoft have dominated the headlines and delivered impressive returns. But there’s another group of stocks that has quietly kept pace with these behemoths, while offering lower risk. Meet the GRANOLAS.
Coined by Goldman Sachs in 2020, GRANOLAS refers to a group of European companies that were the largest in their respective industries at the time. The group includes names like GSK, Roche, and Nestle. While they may not have the same glamour as the Magnificent Seven, these stocks have proven their worth.
In terms of performance, the GRANOLAS have held their ground against the tech giants. Since January 2021, this group has delivered a total return of 63%, matching the returns of Amazon, Apple, and others. This is an impressive feat considering the dominance of the tech sector in recent years.
What sets the GRANOLAS apart is their lower volatility. Since 2018, these stocks have shown on average twice as low volatility compared to the Magnificent Seven. This means that investors can enjoy steady returns without enduring wild swings in their portfolios.
But it’s not just about performance and risk. The GRANOLAS also offer an attractive valuation. While the Magnificent Seven trade at a price-to-earnings ratio of 30, these European stocks are priced at just 20 times earnings. This makes them a more affordable option for investors looking for quality companies at a reasonable price.
The strong fourth-quarter reporting season for the GRANOLAS further solidifies their appeal. Novo Nordisk’s success with weight-loss drugs and ASML’s surge in microchip-equipment manufacturing machines have been key contributors to the group’s performance. However, L’Oreal disappointed investors, primarily due to its struggles in the Chinese market.
According to strategists led by Guillaume Jaisson, the reason why the GRANOLAS trade at a premium to the broader market is their strong and predictable growth. These companies have consistently delivered on their promises and offer a sense of stability in an uncertain market. Goldman Sachs believes that the time to own the GRANOLAS is when global GDP growth is below 3%, which aligns with the bank’s expectations for the next five years.
While many investors turn to exchange-traded funds (ETFs) for exposure to specific themes, it’s worth noting that Goldman Sachs has not created a fund dedicated to the GRANOLAS. This means that investors who want to capitalize on this group’s potential would have to buy each stock individually. While this may require more effort, it also allows investors to handpick the companies they believe in and tailor their portfolios accordingly.
In conclusion, while the tech giants may steal the spotlight, the GRANOLAS have quietly proven their worth. With comparable performance, lower risk, and attractive valuations, these European stocks offer a compelling alternative for investors seeking stability and growth. As global GDP growth slows down, the GRANOLAS could be a smart addition to any investor’s portfolio.
