Get 40% Off
💰 Buffett reveals a $6.7B stake in Chubb. Copy the full portfolio for FREE with InvestingPro’s Stock Ideas toolCopy Portfolio

The European version of Magnificent 7 is trading at a 30% discount - Goldman

Published 12/02/2024, 12:06
© Reuters.

Just like the US, Europe has its own Magnificent group of stocks, which Goldman Sachs calls “the GRANOLAS.”

Created by Goldman Sachs analysts during the first European lockdown amid the Covid-19 pandemic in 2020, GRANOLAS consists of the largest European companies by market cap at the time, including GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca (NASDAQ:AZN), SAP and Sanofi (NASDAQ:SNY).

The GRANOLAS make up about a quarter of the STOXX 600's market capitalization, a proportion that is comparable to the total combined weight of the Energy, Basic Resources, Financials, and Autos sectors.

“From a European point of view, the GRANOLAS accounted for 60% of all gains over the past year. They are a large part of the reason why European equities have performed well despite lackluster domestic GDP,” analysts said.

But what actually caught Goldman Sachs' attention now is the GRANOLAS’ growth potential in the current cycle and the discount the group is trading at when compared to the US-based Magnificent 7.

“The GRANOLAS exhibit qualities that we expect to predominate in this cycle: strong earnings growth, low volatility, high & stable margins, and strong balance sheets,” analysts noted.

They also believe that the group is likely to capitalize on the ongoing transition towards passive investment strategies and the current liquidity challenges in the European equity market.

As for its valuation, it sits at the higher end, with a price-to-earnings (P/E) ratio of 20x. However, this premium is typically expected for growth-oriented companies.

Despite this, they are trading at a 30% discount compared to the Magnificent 7, which have a P/E ratio of 30x, and their trading level is beneath the historical discount they have had relative to the Global Growth factor.

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads .

Most importantly, the growth outlook for GRANOLAS looks appealing, Goldman Sachs analysts noted.

“Consensus expects continued strong growth from these compounders in the coming years, with a 7% revenue CAGR until 2025 for the GRANOLAS and less than 2% for the market excluding GRANOLAS.”

This indicates that the GRANOLAS are expected to generate almost all of the STOXX 600's revenue growth in Europe. That expansion is likely to be supported by businesses with high entry barriers, strong balance sheets, and significant reinvestment in R&D and growth capital expenditures, mirroring the investment patterns of the Magnificent 7, the team said.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.