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It’s hard to find bright spots these days in Europe’s flat economy.
Between red flags of recession, declining production and capital flight from the biggest companies to the US, the continent is in pretty bad shape, especially when compared to its transatlantic allies.
But there is one surprising area where Europe holds its own against the American dynamic. It’s the stock market. And this continent has something called “granola” to be thankful for.
Granola poses a crisis in Europe
Banking giant Goldman Sachs has tracked the growth of the US S&P 500 leader and named a collection of European stocks as the most exciting stocks for investors.
Granolas was first named by Goldman after it grouped GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP and Sanofi as exciting growth prospects in 2020.
Almost four years later, it’s clear the bank was up to something.
In response to Europe’s reputation as an industrial laggard compared to the United States (Europe’s top Fortune 500 companies come from traditional sectors such as energy and automobiles), Granolas is at the forefront of innovative sectors such as pharmaceuticals and technology. and has generated huge shareholder returns.
Highly rated retail stocks are also a driving force.
Granola has matched the growth of the Magnificent 7 since 2021, with the group accounting for 60% of the overall rise in the pan-European STOXX 600 index last year.
Goldman says granola is a big reason why European stock markets are rising despite the continent’s flat economy, and may even be experiencing anemic growth thanks to granola’s own huge profits. Pointed out.
Some of Europe’s largest economies are in or already in recession.
Germany, the continent’s largest economy, saw economic growth fall by 0.3% last year, and the country has revised down its growth outlook for 2024. The country’s PMI readings show output levels have fallen for the 22nd consecutive month.
The region as a whole continues to battle the effects of sanctions against Russia following Russia’s invasion of Ukraine, which have driven up energy and transportation costs.
In addition to the negative impact on supply chains caused by the coronavirus, deteriorating relations with other trading partners such as China are also leading to higher costs and lower consumer confidence.
But Goldman says granola was made for Europe’s long economic winter.
In fact, the bank says this group of stocks enjoys the best performance when annual GDP growth is below 3%.
Swarup Gupta, industry manager and principal analyst for financial services at the Economist Intelligence Unit (EIU), says Europe’s popularity despite economic instability is due to its industry mix and passive investment funds. This is said to be due to its growing popularity.
“In times of great economic and political uncertainty, these offer a healthier, more balanced portfolio and, given the popularity of low-cost investment vehicles such as ETFs and algorithmic mutual funds, will continue to grow for at least the next year. It is likely to maintain its popularity,” Mr. Gupta said. luck.
No bubble luggage on the Magnificent 7?
Commentators often find updated lists of hot stock groups that offer investors a shortcut to solid index-based returns.
Before the Magnificent 7, it was MAANAM stock that dethroned the long-popular FAANG group, thanks in large part to Meta’s name change and the decline of Netflix.
It’s easy to compare Granolas’ success to that of America’s newest stock market giant group, the Magnificent 7.
The tech group, which includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, accounted for much of the S&P 500’s massive 24% return last year.
But based on information from Wall Street’s biggest firms, many investors believe this run could soon end.
Jeremy Siegel, a celebrity who predicted the dot-com bubble, argued that a new bubble may be forming around AI, but he doesn’t know when it will end.
Another commenter said: shark tank Mark Cuban and JPMorgan CEO Jamie Dimon are more skeptical that the Magnificent 7 is leading U.S. stocks over the edge.
AI bubble or not, Granolas seems less affected by the AI bubble as technology companies make up a small portion of the group.
The group’s drug stocks have long been popular in the U.S. and are likely to remain so because of their pioneering research in cancer and obesity drugs, said Anna Nichols, industry director at EIU. .
“Europe remains focused on the higher value end of the pharmaceutical supply chain, where skills, innovation and a favorable business environment are more important,” Nichols said.
Meanwhile, luxury retail stocks such as LVMH and L’Oréal have outperformed their rivals despite the broader industry downturn.
Goldman strategists summarized: “In our view, this group of stocks is trading at a premium in the market because they deliver strong (and predictable) growth.”
Morgan Stanley, which recently started focusing on European stocks, is also bullish on European stocks after receiving approval from some of the world’s biggest banks.
there are many risks
Part of granola’s alignment with the broader European economy is its exposure to risk. And there are many risks.
The impending US election could spell disaster for Europe’s biggest companies if Donald Trump retakes the White House and enacts proposed 10% tariffs on all imports. But granola being produced in the United States reduces that risk.
There is also the persistent threat of China. Goldman estimates that 10% of Granola’s revenue comes from China. The country has been battling weak consumer confidence for years since the country’s exit from the coronavirus lockdown stalled.
L’Oréal is struggling with a slower-than-expected recovery in consumption by Chinese residents, a trend that is affecting the beauty industry more generally.
Like the United States, China faces the imminent possibility of tougher trade barriers as political tensions cool further.
The index itself has also been met with skepticism, with an ominous warning that investors should look beyond the name before backing a group of highly touted stocks.
“Even though hype can drive up stock prices in the short term, a catchy name doesn’t necessarily translate to a good long-term investment,” said Russ Mould, investment director at brokerage AJ Bell. .
“The companies in question have little or nothing in common apart from their European geographic origin. The acronym is just a marketing tool and nothing more.”
But for now, granola that lives up to its name could offer a healthier alternative to America’s premium granola and give Europe’s economy some much-needed oomph.
This article originally appeared on Fortune.com
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