2024 has been an eventful year. In the US, technology stocks have risen and fallen on changing artificial intelligence sentiment and a financial news cycle driven by company earnings and the Federal Reserve. And in Europe, elections and interest rate cuts have shaken up markets.
Little wonder this has affected Europe’s best companies, termed the “GRANOLAS” by analysts from Goldman Sachs back in 2020.
What Are The GRANOLAS Stocks?
A collection of big names from a wide variety of industries across continental Europe and the UK, the GRANOLAS are:
• GSK (GSK)• Roche (ROG) • AstraZeneca (AZN) • Novo Nordisk (NOVO B) • Nestlé (NESN) • Novartis (NOVN) • L’Oréal (OR) • LVMH (MC) • ASML (ASML) • SAP (SAP)
According to Michael Field, senior equity market strategist at Morningstar, the GRANOLAS have delivered a mixed performance in 2024. He says there is no obvious discernible pattern influencing how each stock has performed.
“It has been an unpredictable year for the GRANOLAS,” he says.
“The main difference between them and the Magnificent Seven is they are very highly weighted towards technology.
“The GRANOLAS are highly diversified across various sectors, and the performance has been mixed.”
Which GRANOLAS Stocks Have Performed Well?
German multinational software business SAP SAP, continues to lead the pack, posting a year-to-date return of around 57%.
At its Q3 earnings, SAP reported total revenue of €8.4 billion, a jump of 9% from levels in Q3 2023. At the heart of the success was its cloud business, which grew by 25% year-over-year, to €4.4 billion.
The business has repositioned itself to sell customer subscriptions to its cloud apps, beating rivals WorkSpace and Salesforce in the enterprise app space.
Key Morningstar Metrics for SAP SAP
• Economic Moat: Narrow • Fair Value Estimate: EUR 150 • Forward Dividend Yield: 1.02% • Morningstar Rating: 1 star • Sector: Technology • Morningstar Uncertainty Rating: Medium
Tom Lemaigre, co-portfolio manager of the Janus Henderson Continental European Fund, which has a Morningstar Medalist Rating of Bronze, believes SAP’s return is well deserved because of its heavy revenue pipeline.
“There is a lot of visibility in terms of the cloud backlog,” he says, “[which is] the number of customers that need to move to the new version of SAP because they are cutting off support for the previous version for either 2027 or 2028.
“And if anybody continues beyond that in terms of that license, they are going to have to pay them quite a lot of money.”
Should I Buy Novartis Stock?
Pilar Lloret Martinez, fund manager of the Spain-domiciled Nao Europa Responsable Fund, is bullish on the pharmaceutical company Novartis NVS. The stock, which makes up 4.77% of his fund, has returned around 8% year to date.
“The pharmaceutical sector is not a defensive play in general,” she says.
“But when we look for companies that can be defensive within the sector, we are looking for stocks like Novartis that have a lot of relatively new medicines in the bank.
“Apart from just having a pipeline of drugs that is relatively diversified, it also has pricing power.”
Key Morningstar Metrics For Novartis NOVN
• Economic Moat: Wide • Fair Value Estimate: CHF 91 • Forward Dividend Yield: 3.42% • Morningstar Rating: 3 stars • Sector: Healthcare • Morningstar Uncertainty Rating: Medium
In July 2023, the Swiss drug maker announced a multi-billion dollar share buyback scheme after it failed to find competitors it felt were compelling enough to acquire.
However, Llorent-Martinez points to this decision as one of the reasons the company is such an attractive buy.
“Novartis has a very clean balance sheet,” she continues.
“It does not usually buy from other companies. Often businesses with a lot of cash on hand buy a competitor or end up indebting themselves to do so. Novartis has been quite disciplined in that sense.”
Novartis reported an increase in sales growth of 10% for Q3 2024. Much of it was driven by a 119% increase in sales of its drug Leqvio, which is used to treat lipoprotein cholesterol and people with atherosclerotic cardiovascular disease.
How Has ASML Performed This Year?
If there’s one company that has surprised Field, however, it’s ASML ASML. Between July and November this year, its share price has fallen sharply.
In October, the semiconductor giant released third-quarter results that showed that the market was facing a slower recovery than expected.
The Dutch group then warned its net sales for 2025 would reach between €30 billion to €35 billion, much lower than its previously declared estimates that revenues could reach as much as €40 billion.
The firm also saw fewer customer orders in Q3, worth around €2.6 billion, which was far lower than analysts’ expectations of €5 billion.
Over the last 6 months, ASML’s share price has dropped by just under 27% to €618.40, making it undervalued according to Morningstar analysts.
Key Morningstar Metrics for ASML Holdings
• Economic Moat: Wide • Fair Value Estimate: EUR 850.00 • Forward Dividend Yield: 1% • Morningstar Rating: 4 Stars • Sector: Technology • Morningstar Uncertainty Rating: High
Major ASML customers, including Intel INTC to Samsung SMSN, have delayed purchasing chips and equipment they depend on due to market volatility.
The semiconductor giant has also been caught up in the geopolitical battle between China and the US.
The Netherlands and US have restricted ASML’s most advanced lithography machines to halt Beijing’s AI capabilities. But that didn’t stop Chinese chipmakers from importing its older equipment.
“In the medium to long term, [ASML] can diversify away from its exposure to China,” Field says.
“There is little it can do in the short term; they will have to send whatever they are allowed to send to China. ASML got very caught up in this AI play in terms of making machines that make chips for AI.
“Whereas in fact they are quite diversified across the whole semiconductor space. But that’s where the excitement came into the shares and that is where people saw growth. And now it is hurting them because that AI excitement is gone.”
Lloret-Martinez is not as concerned by the geopolitical risk. She argues another holding in her portfolio—Taiwan Semiconductor Manufacturing Co TSM—is more likely to be hit by macroeconomic uncertainties.
“ASML [could be threatened] if there was a technology that could beat it. We know ASML makes the most precise semiconductor machines, which use extreme ultraviolet technology. These are machines that nobody else makes,” she says.
“So, the world cannot afford to not allow ASML to sell its machines to companies that are offshoring away from China.”
As such, despite the negative rhetoric and the sabre rattling, she doesn’t think the company will be on the back foot for long.
Can LVMH Recover From Its Luxury Slump?
LVMH MC has also been one of the worst-performing GRANOLAS stocks this year.
Year to date, its share price has fallen 15%. In its latest results, the Dior and Louis-Vuitton owner generated revenue of €19.1 billion for the three months ending in September 2024, a 3% fall on an organic basis.
LVMH also witnessed its sales fall in Asia, excluding Japan, by 16% in Q3. Sales in the US remained stagnant.
“LVMH is having a tough time. It’s had very weak organic growth numbers for a company that usually posts stellar numbers,” says Lemaigre.
“It’s tough out there in the luxury world. People are reappraising what luxury means. Did luxury companies take too much cumulative pricing during Covid? It’s very possible.
Key Morningstar Metrics For LVMH MC
• Economic Moat: Wide • Fair Value Estimate: €650.00 • Forward Dividend Yield: 2.14% • Morningstar Rating: 3 stars • Sector: Consumer Cyclical • Morningstar Uncertainty Rating: Medium
In the third quarter of 2024, demand for LVMH products worsened, especially in its fashion and leather goods division. Weaker Chinese consumer demand was been the main driver of the sales dip as customers spent less amid serious economic challenges in the country—not least in the country’s housing market.
Investors hoped that the Chinese government’s recent stimulus package would improve consumer sentiment, which could see a return to spending on luxury. But the small bump in luxury stocks’ share prices after that news shows the rally will not endure.
“The luxury goods sector is often sold as homogenous,” Field says.
“However, there is a huge difference in terms of quality, appeal, and target markets of luxury goods companies. Brands like Burberry and LVMH are more aspirational, which is to say more middle-class people are buying their products.
“The level of volatility in those shares [shows that] it’s a high-risk, high-reward type scenario. It now looks like you really do have to be bought into luxury for the long term.”
What Will Happen to The GRANOLAS Stocks in 2025?
In 2025, Field expects the valuations on certain of the GRANOLAS stocks to “realign”, with previous laggards doing well and outperformers struggling. Consumer stocks is one sector that has struggled this year, for example.
“You might expect a consumer uplift over the next quarter or maybe further. We had Unilever results and [sales] volumes were up. That’s a positive sign.
“So perhaps what you will see in the next few months is that ironing out. Stocks that have done badly will start performing better—and vice versa,” he adds.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
