The Magnificent 7 tech stocks have been a big part of the extraordinary US market rally. But there’s a rival group of companies powering European stocks to new heights with even better returns, by some measures.
Dubbed the “Granolas,” those 11 companies accounted for 60% of the gains on Europe’s benchmark stock index over the past 12 months. They have even slightly outperformed the Magnificent 7 over a longer period, according to Goldman Sachs.
The Granolas — an acronym coined by the bank in 2020 to describe Europe’s biggest companies by market capitalization at the time — comprise GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP and Sanofi.
“They are a large part of the reason why European equities have performed well despite lackluster domestic GDP,” Goldman Sachs analysts wrote in a note earlier this month that highlighted their outsized gains. They praised the companies’ “strong earnings growth, low volatility, high (and) stable margins, and strong balance sheets.”
Over the past three years, investors in the Granolas have enjoyed a total return — which includes share price gains and dividends — of 65% on average, slightly above the 64% delivered by the Magnificent 7, Goldman Sachs analyst Guillaume Jaisson told CNN Tuesday.
In his calculations, Jaisson adjusted the performance of each stock to reflect its weight in the Stoxx Europe 600 index or the S&P 500 index based on its market cap.
The Granolas are a diverse bunch, spanning healthcare, tech, food and luxury sectors. They are listed across France, Germany, Denmark, Switzerland, the Netherlands and the United Kingdom, in contrast to the Magnificent 7, which are all tech firms listed in the United States.
The Granolas’ shares have, on an unweighted average, risen nearly 18% over the past 12 months — more than double the 7.3% increase notched by the pan-European index, according to CNN calculations. The top performer was Novo Nordisk, the Danish drugmaker whose stock has soared 65% over the past year thanks to its blockbuster weight loss drugs Ozempic and Wegovy.
Goldman Sachs expects the Granolas to make up “nearly all” of the revenue growth across companies in the pan-European index in coming years.
The Granolas’ success may, however, be a double-edged sword for European markets.
Their standout performance has “raised the issue of concentration effects” in the region’s stock market, says Philip Lawlor, managing director of markets research at Wilshire Indexes.
In other words, investors — many of them investing passively via exchange-traded funds — will continue to plow money into the 11 big companies at the expense of smaller firms, he told CNN. Passive investing vehicles often allocate bigger sums to stocks that dominate the index they track, he noted.
The Granolas represent 20% of the combined value of all 600 companies in the Stoxx Europe benchmark, while the Magnificent 7 account for almost 30% of the value of the S&P 500.
“As more and more money gets sucked into markets through passive vehicles, it encourages more and more money to get sucked into big stocks,” Lawlor said, adding that the Granolas’ success would in this way become “a self-fulfilling prophecy.”
Goldman Sachs, in its note earlier this month, also acknowledged that the Granolas stood to “benefit from the structural shift towards passive investment.”
The S&P 500 is seeing the same concentration, with an unprecedented rally in tech stocks — fueled by investor excitement around artificial intelligence — outpacing the rest of the market by a wide margin.
The index is up more than 6% so far this year, but when all the stocks in it are equally weighted, the benchmark is up just 2.3%.
Last year, the S&P 500 rose 24.2%, but its equal weights version was up just 11.6%. “That marked the first time since 1998 that the S&P 500 outpaced its equal-weighted version by more than 10 percentage points,” Deutsche Bank analysts wrote in a note.
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