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Europe’s Own Magnificent Seven

Published 28/02/2024, 08:07
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CONCENTRATION: US tech stock leadership and rising stock concentration are being echoed in Europe. It’s much smaller ‘magnificent 7’ tech stocks have led European performance (see chart) and potentially benefitted from a scarcity valuation premium. Whilst the broader-mix of quality-growth ‘GRANNNOLAS’S’ that are Europe’s equivalent of US big-tech have driven recent performance. They are now a quarter of the Stoxx 600 index, and trade at a similarly big local valuation premium. We see a broadening of performance as the year progresses. Into smaller, more cyclical, and cheaper segments most sensitive to lower interest rates and GDP recovery.

‘MAGNIFICENT 7’: We created a basket of Europe’ seven largest tech stocks. They’ve healthily outperformed the Stoxx 600 but lagged US peers. They have a similar 30x fwd. P/E, but lower profitability and growth. And a fraction of the US’s $12 trillion market value at under $1 trillion. They are Netherland’s ASML (AS:ASML), ADYEN (ADYEN.NV), Germany’s SAP (SAP), Infineon (IFX.DE), France’s STMicro (STM.US), Capgemini (CAP.PA), and UK’s RELX (REL.L). The tech and communications sectors are 11% the European market vs 39% in the US. But benefit from a scarcity premium. With UK tech stocks, for example, the only sector at a premium to US. 

‘GRANNNOLAS’S’: This acronym was coined by Goldman Sachs (NYSE:GS) out of 11 of Europe’s biggest stocks. They have similarly driven market performance, making up half Stoxx 600 gains the past year. And dominating the index, with a 25% weight only a little under big tech in the S&P 500. And a similar local premium 21x fwd. P/E valuation. But less growth and profitability and a broader sector base. The eleven are Switzerland’s Nestle (NESN.ZU), Roche (LON:0QQ6) (ROG.ZU), Novartis (LON:0QLR) (NVS), UK’s Glaxo (GSK (LON:GSK).L), AstraZeneca (NASDAQ:AZN.L), France’s LVMH (EPA:LVMH) (MC.PA), L’Oreal (OR.PA), Denmark’s Novo-Nordisk (NVO), Germany’s SAP (SAP), Netherlands’ ASML (ASML).
Mafnificent seven and GRANNNOLASS

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