Those European Stocks Have Been Doing Better Than The S&P 500

Those European Stocks Have Been Doing Better Than The S&P 500
Stéphane Renevier, CFA

4 months ago1 min

You’ve probably heard that the S&P 500 (orange line) has outperformed the Eurostoxx (blue) over the past few years. And at first glance, that’s absolutely true. But dig just slightly deeper, and you’ll see a more nuanced story.

If you were to strip the tech stocks out of the S&P 500, you’d see the index has fallen 4% since the Federal Reserve’s interest rate hikes began in March 2022. Contrast that with Europe’s top-tier stocks, a/k/a the “GRANOLAS” (GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP, and Sanofi). These giants reached new heights over that period, rising by 11%. What’s more, over the past five years, the GRANOLAS (white) have consistently outperformed both the S&P 500 and the Eurostoxx.

The secret recipe for GRANOLAS is their mix of robust earnings growth, sturdy balance sheets that carry little debt and favorable financing costs, sustainable and growing dividends, and a competitive edge that allows them to maintain high and stable margins. And to sweeten things up a little, most of their revenues stem from markets outside the still-sluggish European bloc. So that outperformance is pretty likely to continue.

And sure, GRANOLAS are pricey: they trade at a premium. But you’d be hard-pressed to say that’s unjustified in such an uncertain macroeconomic environment. And with their high-quality characteristics and defensive nature, you’d have a hard time finding reasons not to add a little crunch to your portfolio’s diet.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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