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Investors looking to diversify from U.S. large-cap stocks should look to the top performers in Europe, according to Goldman Sachs.
Chief Global Equity Strategist Peter Oppenheimer and team recommend going long the GRANOLAS, a group comparable to the Magnificent 7 in driving broader market returns.
While the Mag 7 is tech heavy - Apple (AAPL), Amazon (AMZN), Alphabet (GOOG) (GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA) - the GRANOLAS have a non-tech bias.
They are GSK (NYSE:GSK), Roche (OTCQX:RHHBY), ASML (NASDAQ:ASML), Nestle (OTCPK:NSRGY), Novartis (NYSE:NVS), Novo Nordisk (NVO), L'Oreal (OTCPK:LRLCF), LVMH (OTCPK:LVMHF), AstraZeneca (NASDAQ:AZN), SAP (NYSE:SAP) and Sanofi (NASDAQ:SNY).
For those looking to branch away from the S&P 500 (SP500) (SPY) (IVV) (VOO) they are among the least correlated with the index.
"The GRANOLAS trade on a similar valuation to the S&P 500 but with stronger (and perhaps more stable) growth," Oppenheimer said.
The GRANOLAS are reinvesting at a high rate, which will allow them to compound earnings over time, he added. The last five years growth investment ratio (growth capex + R&D/cash flow from operations) of 55% for the group is close to that of the 59% for the Magnificent 7.
Their market cap is 25% of the Stoxx 600 (STOXX) (OTC:DJXXF), while the Mag 7 is 22% of the S&P. Since June 2022 they have been responsible for 71% of the index's gains, 29% of gains in the past year and 40% of gains year to date.
The GRANOLAS’ outperformance is "even more impressive on a risk-adjusted basis," Oppenheimer said. "The realized volatility of the GRANOLAS is on average 2x lower than for the Magnificent 7."
In addition, they "can benefit from the structural shift towards passive investment" as they "tend to outperform when passive funds see more inflows than active."
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