Goldman Sachs Group Inc. has unveiled a group of European companies that it says are well-positioned to outperform during the current market.
Goldman Sachs singled out companies with strong balance sheets, low volatility growth and good dividend yields and has dubbed the firms “GRANOLAS.” The acronym comes from the companies on Goldman’s list: GlaxoSmithKline, Roche Holding, ASML Holding, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP and Sanofi.
Goldman Sachs said in a note to clients that the next phase of the stock market, whether it turns into a bull run or not, is less likely to be driven by an expansion in valuations. Instead, the leaders of the forthcoming market cycle will be companies that are able to generate earnings growth, sustainable dividend payouts and have healthy balance sheets.
"In the U.S., tech is still likely to remain the long-term winner," Goldman wrote. "In Europe it’s more likely to be a combination of structurally strong and/or stable sectors: healthcare, consumer staples and tech."
Among the challenges the European stock market has faced is the relatively low presence of technology companies in the Stoxx 600 Index. In the U.S., FAANG stocks -- a group of technology companies that includes Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOGL) -- have been among investor favorites.
The past decade’s bull market has been led by tech shares, which are usually associated with growth due to strong cash flows and higher expansion rates. This is pushing Goldman to look beyond tech companies in Europe when searching for outperformers. The stocks comprising the GRANOLAS each offer earnings growth and stability, while their dividend yields are in the 2% to 2.5% range.
