The GRANOLA stocks – 11 firms that for the last 12 months have made up half of the gains that drove the pan-European Stoxx 600 to a record-high close on Friday – are impressive, but investors need to be cautious of hype.
This is the warning from Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory and asset management organisations, as comparisons are drawn with the so-called Magnificent Seven stocks – the US tech stocks (Apple, Microsoft, Nvidia, Amazon, Meta, Tesla and Alphabet) that have fuelled mighty Wall Street gains for the last year.
Four years ago, analysts at Goldman Sachs came up with the GRANOLAS acronym for Europe’s leading stocks. These are GlaxoSmithKline, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP, Sanofi.
Nigel Green comments: “The gains made by these stocks is, undoubtedly, impressive. Over the last 12 months they have proven to be highly rewarding for investors.
“They all have shown strong credentials: robust earnings growth, low volatility, high margins and strong balance sheets.
“And although lower in market value than the Magnificent Seven, as a grouping, GRANOLA stocks are more diversified – unlike their US tech exclusive counterparts – and cheaper on average.”
However, with the volume is getting louder and the frenzy reaching fever pitch about the GRANOLA stocks, the deVere CEO is issuing a warning.
“This hype is dangerous as it could lead investors to assume that these stocks are a silver bullet to build long-term wealth – and they are not, at least not on their own. While I believe that exposure to these stocks should be part of almost every investor’s portfolio, as they have robust fundamentals, they should not be exclusive.
“Diversification across geographies remains critical.”
“A lot of good news is already being priced-in to these stocks. What if it doesn’t materialise? Shocks happen and investors need to expect the unexpected and mitigate risk.”
He continues: “Only a fifth of revenues come from Europe, meaning their destinies are intertwined with global market dynamics.
“Currency fluctuations, especially a stronger euro, could hit GRANOLAS more than other smaller cap European stocks, for example.
“With exposure to the US of around 35%, there’s a tariff risk too – especially should Donald Trump become the next US president.
“Plus, there are growing trade tensions between Europe and China.”
The diverse nature of the GRANOLA stocks, which are spread across various industries, can provide a certain level of stability, as the performance of one sector may not necessarily correlate with others.
“However, it also underscores the need for careful scrutiny of each company’s fundamentals, don’t think of them in group terms, as the impact of macroeconomic factors can vary significantly,” says Nigel Green.
He concludes: “Investors must exercise caution and avoid succumbing to hype regarding the GRANOLAS. They must consider the unique challenges and opportunities presented by each company within the acronym.”
