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Everyone knows Magnificent 7 stocks, but are GRANOLAS the new one in 2025?
Note: This article was translated into English using Copilot.
Most investors know, or have already invested in, one of the Magnificent 7 stocks (Mag7). The Mag7 covers seven US tech stocks, and is a collective term for Apple, NVIDIA, Tesla, Alphabet, Amazon, Meta and Microsoft, which in the last few years have driven a large part of the US and global stock returns.
In Europe, they have their own "darlings" called, GRANOLAS. GRANOLAS is probably a term that is less well known among investors in Asia, but when you hear the names that the group covers, most people know many of the companies. Instead of 7 shares in Mag7, GRANOLAS consists of 10 of the largest European companies; GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L'Oreal, LVMH, AstraZeneca, SAP and Sanofi.
While the Mag7 stocks are all technology stocks, GRANOLAS is very heavy in pharmaceutical stocks, but is more diversified and also includes technology stocks such as ASML and SAP as well as consumer stocks such as Nestle, L'Oreal and LVMH.
The return on large European stocks has significantly underperformed US technology stocks. As can be seen in the graph below, the Nasdaq100 index, where the Mag7 shares constitute significantly, is up by a whopping 131% since the start of 2020, while the Euro Stoxx 600, where GRANOLAS make up a lot of the index, is only up by 22% in the same period.
However, this does not mean that you should judge the European giants just yet, because right now may be a good time to take an extra look at the GRANOLAS shares.
Source: Bloomberg, Saxo
Looking at Mag7 and GRANOLAS shares across valuation, earnings growth and momentum in companies' earnings growth relative to 2024 could indicate that GRANOLAS shares should once again have a place in a balanced investment portfolio.
The figures in the tables below are based on analysts' average expectations for 2025.
It is of course not certain that the companies will reach the expectations that are placed on them, but this gives a clear indication of what the market expects the various companies to deliver in terms of profits in 2025, and how they will be valued in relation to the expected 2025 results.
As shown in the table below, Mag7 shares are trading at an average of 44.5x their expected earnings in 2025. It is especially Tesla's valuation that pulls up the average, with the remaining Mag7 shares valued at around 25-35x their expected 2025 earnings.
Looking at the average GAAP EPS growth for the Mag7 companies, the market expects EPS (earnings per share) to grow by an average of 24.2% in 2025. GAAP stands for "Generally Accepted Accounting Principles", and in short, means that earnings growth is calculated based on the companies' actual financial figures, and not their adjusted financial figures.
While 24.2% earnings per share growth sounds attractive, as an investor, it's worth noting that the expected earnings growth is 15.2 percentage points lower than it was in 2024. In other words, earnings growth is still strong in Mag7, but the momentum in the shares' earnings growth is negative among all companies in the group except Tesla and Apple, which are expected to deliver higher earnings growth in 2025 compared to 2024.
Source: Saxo
From the same numbers, GRANOLAS shares look attractive compared to Mag7 shares. On the valuation, GRANOLAS trades at an average multiple of 21.3x its expected 2025 earnings, which is about half of the Mag7 shares' valuation.
The expected earnings growth per share is on average 30.2% for 2025, which is higher than the growth expected in Mag7 earnings. Earnings growth momentum is also positive for GRANOLAS shares, with 24.4 percentage points higher earnings per share growth expected in 2025 compared to 2024.
In short, GRANOLAS wins over the Mag7 shares on both valuation, expected earnings growth and expected momentum in earnings growth, which suggests that investors should give Europe's GRANOLAS shares an extra look instead of only focusing on the Mag7 shares to find growth and quality stocks for the investment portfolio.
Source: Saxo