Podcast Summary
Europe's Top Performing Stocks Known as 'Granolas': Europe's 'granolas' include 11 top-performing stocks like Laxosmith Klein, Roche, ASML, Nestle, Novartis, Novo Nordisk, L'Oreal, LVMH, AstraZeneca, S.A.P, and Sanofi. These stocks have driven European markets to new highs and are worth considering despite the US outperforming European markets over the past decade.
Europe has its own impressive list of stocks, known as the "granolas," which have driven European stock markets to new record highs. These 11 companies, including Laxosmith Klein, Roche, ASML, Nestle, Novartis, Novo Nordisk, L'Oreal, LVMH, AstraZeneca, S.A.P, and Sanofi, have performed exceptionally well and are collectively referred to as the "granolas." The term was coined by Goldman Sachs in 2020. These stocks are worth considering for investors, even though the US stock market has outperformed European stock markets over the past decade. The Stocks Europe 600 index, which tracks the performance of 600 large, medium, and small stocks among 17 European countries, covers about 90% of the total value of the European stock market. It's important to note that investing always comes with risks, and your capital is at risk when you invest. Remember, this information is for educational purposes only and should not be considered financial advice.
Europe's Top Performing Companies Drive Market Growth: Eleven leading European companies, including GlaxoSmithKline, Roche, ASML, Nestle, Novartis, Novo Nordisk, L'Oreal, LVMH, and AstraZeneca, accounted for over half of the Europe 600 index's gains in the past year, with operations in pharmaceuticals, diagnostics, technology, food and beverage, and luxury goods industries.
The 11 companies, including GlaxoSmithKline, Roche, ASML, Nestle, Novartis, Novo Nordisk, L'Oreal, LVMH, and AstraZeneca, account for a significant portion of the Europe 600 index and have driven market growth with over 50% of the gains in the past 12 months. These companies operate in various industries such as pharmaceuticals, diagnostics, technology, food and beverage, and luxury goods. Among them, GlaxoSmithKline is a UK-based pharmaceutical company producing medicines and healthcare products, Roche is a Swiss pharmaceutical and diagnostic tools specialist, ASML is a Dutch high-tech EUV lithography systems creator for semiconductors, Nestle is a multinational food and beverage company, Novartis is a Swiss pharmaceutical business with two divisions, Novo Nordisk is a Danish diabetes care company, L'Oreal is a French cosmetics and beauty industry leader, LVMH is a French luxury goods conglomerate, and AstraZeneca is a UK-based biopharmaceutical company. These companies' strong performances have contributed significantly to the growth of the Europe 600 index.
11 Global Businesses with Exciting Prospects: Investing in these 11 diversified companies, known as 'granola' stocks, provides benefits of reduced volatility, attractive valuations, and stable profits in the current market climate.
The discussion highlighted a list of 11 global businesses spanning various industries such as pharmaceuticals, software, fashion, cosmetics, and EUV lithography machines. Analysts are excited about their prospects due to their consistently growing dividends, strong competitive positions, ability to raise prices without significantly impacting demand, stable profits, cash generation, and solid financial positions. The articles suggest that investing in these "granola" companies, particularly in the current market climate, offers diversification benefits, reduced volatility compared to tech giants, and more attractive valuations.
High-growth vs. stable companies: A trade-off between risk and reward: The 'Magnificent Seven' tech companies offer high growth potential but greater risks, while 'granolas' provide stability and lower risk with moderate growth. Granolas have returned 17% per year and trade at lower valuations, making them attractive for investors with lower risk tolerance.
While the "Magnificent Seven" tech companies offer high growth potential, they come with greater risks due to their industry concentration and market volatility. On the other hand, the "granolas," a group of more diversified companies across various industries, may provide more stability and lower risk, even if their growth rates are not as high. The granolas have returned an average of 17% per year from March 2019 to March 2024, while the Magnificent Seven averaged 46% per year during the same period. However, the latter's returns come with greater volatility. Furthermore, the granolas are trading at lower valuations, with investors paying around 20 times next year's earnings, compared to the Magnificent Seven's average valuation of 30 times next year's earnings. This difference in valuation could make the granolas more attractive to investors with a lower risk tolerance. Overall, the choice between investing in high-growth, high-risk companies and more stable, lower-risk companies depends on individual investor preferences and risk tolerance.
Investors pay more for faster-growing companies: Investors prioritize companies with high growth rates, even if valuations seem high, and may prefer familiar industries and companies for personal reasons.
Investors are willing to pay more for stocks of companies that are expected to grow their profits at a faster rate, even if the current valuation metrics seem high. This was discussed in relation to the "Magnificent 7" companies, which have seen incredible profit growth and are consequently valued higher than other companies. However, some investors, like the speakers in this podcast, may prefer to invest in companies and industries they understand well and feel comfortable with, which may exclude certain industries or specific companies, such as healthcare and pharmaceuticals or LVMH, respectively. Despite the professionals' optimism about certain "granola" stocks, the speakers offered their personal opinions, with one expressing interest in LVMH due to its strong track record in acquiring and growing luxury brands, its financial firepower, global reach, and diversification within the luxury sector.
Adapting to societal trends and strong leadership with substantial ownership: LVMH's success stems from its ability to adapt to societal trends, strong leadership, and substantial family ownership, allowing it to mitigate declining trends and capitalize on growth in various segments, ensuring long-term alignment with shareholders and a stable succession plan in the growing luxury goods market.
LVMH's success is underpinned by its ability to adapt to societal trends and its strong leadership with substantial ownership. The company's diverse portfolio allows it to mitigate the impact of declining trends in one segment by capitalizing on growth in another. The Arnault family's significant ownership, with Bernard Arnault himself holding 48.6% of the shares, ensures that their priorities align with long-term shareholders. Furthermore, the involvement of the next generation of Arnaults in the business adds stability to the succession plan. Lastly, the growing luxury goods market, projected to reach nearly $400 billion by 2030, bodes well for LVMH's future growth.
LVMH's Growth Factors and Risks: LVMH's global reach, a growing middle class, and diversification contribute to its stability and growth. However, the Chinese market and potential succession pose risks.
LVMH, a leading luxury goods company, benefits from various factors that contribute to its stability and growth, even during economic downturns. These factors include a growing global middle class, particularly in China, and LVMH's diversification. However, the Chinese market, which is a significant contributor to LVMH's sales, poses a potential risk due to recent economic instability. Another risk is the eventual succession of Bernard Arnault, LVMH's CEO, who has been compared to Warren Buffett in his business acumen. Despite these risks, LVMH's long-term focus, strong management, and consistent delivery of strong results make it an attractive investment opportunity. LVMH's combination of growth potential and stability, along with its focus on luxury brands, make it a compelling choice for investors, much like how Berkshire Hathaway is associated with Warren Buffett.
ASML's Unique Position in the Semiconductor Industry: ASML's unique position in the semiconductor industry and strong order visibility make it a long-term investment opportunity despite lumpy results.
ASML, a company that manufactures machines essential for creating the smallest semiconductors, is a long-term investment opportunity due to the increasing demand for smaller, more powerful chips in technology advancements. Despite reporting a 22% revenue decline in Q1, ASML's unique position in the industry and lumpy results are expected, with the company having a clear visibility into future orders worth about 18 months. The cost of ASML's latest innovation, the high NA Twinscan EXE lithography machines, is an astounding $380 million. This cyclical industry's investment periods can lead to lumpy results, but ASML's strong order visibility provides reassurance.
Investing in granola stocks vs tech stocks: While granola stocks offer stability and diversification, they may result in lower returns compared to tech stocks. Tech stocks, like the Magnificent Seven, have higher growth potential but also higher risk.
While investing in "granola" stocks, which are typically large, stable companies outside of the tech sector in the US, offers diversification and stability, it may also result in lower returns compared to high-growth tech stocks. The speaker specifically mentioned his investment in ASML, a dominant player in the chip industry, which he believes has strong growth potential and a solid financial position. However, he noted that the share price has performed well since his initial investment, making it more difficult for him to add to his position. The speaker also compared the performance of the "Magnificent Seven" tech stocks to the "granolas," noting that the worst performing tech stock, Alphabet, still outperformed most granola stocks over the past decade. Ultimately, the decision to invest in either type of stock depends on an investor's risk tolerance and investment goals.
Investing in global index funds offers portfolio stability: Considering global index funds and individual company investments for balance and growth potential. Diversification into European stocks through funds like granolas is beneficial.
While an S&P 500 index fund may offer the best returns in the long term, investing in global index funds provides more stability to a portfolio. However, individual company investments can offer higher growth potential with increased risk. The discussion also touched upon the potential benefits of diversifying into European stocks through funds like the granolas. Ultimately, the decision to invest in granolas or any other investment vehicle depends on an investor's risk tolerance and investment goals. The podcast emphasized the importance of balance in a portfolio and encouraged listeners to explore different investment options. The hosts also reminded listeners to consider rating and reviewing the podcast to help it reach a wider audience and to use the referral code provided by their sponsor, Trading 212, to receive a free fractional share.
