People like talking about the Magnificent Seven. It’s a catchy name that looks good in headlines and investor presentations, and it’s backed up by the kind of gains that make European investors sick with envy (even if we’re all supposed to be worried about index concentration).
Continental pride stung, FT Alphaville asked various analysts and investment strategists whether Europe has its own equivalent to Wall Street’s much-discussed septet.
The most frequent response, by far, was “no”.
That hasn’t stopped the industry’s leading lights from proposing their share of snappy titles and questionable acronyms.
Goldman Sachs gave it a go with the ‘Granolas’ or, more accurately, GRANNNLLASS: GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, and Sanofi. (Alphaville believes that using L’Oréal as an O is cheating, even if it makes your acronym look nicer.)
The list, first dreamt up in 2020, has been back in the spotlight recently, even getting a front-page feature on MainFT as all of the chatter about the Magnificent Seven sparks a surge in arbitrary lists of successful stocks.
Citi threw its hat into the naming ring last week with the less imaginatively titled ‘Super Seven’, chosen for growth potential. The group consists of Novo Nordisk, ASML, and LVMH (no surprises there) as well as SAP, Schneider Electric, Richemont and Ferrari.
Strategist Beata Manthey wrote:
Our European ‘Super 7’ are cheaper than the US Mag 7, offer similarly attractive margins, and have underperformed the Mag 7 by 70 per cent since the start of ‘23, leaving room for catch-up.
It’s a case of backing the Super Seven tortoise over the Magnificent Seven hare (which, to be fair, is the moral of the fable).
SocGen, not to be outdone, has offered up the ‘Seven Wonders of Europe’: a set of “global players” and “earnings champions” selected from the stocks that have contributed most to the Stoxx 600’s gains since January 2020.
Their list consists of Novo Nordisk, ASML, LVMH, SAP, Siemens, Schneider Electric, and Hermès. Readers may notice some recurring themes.
This group is desirable, says SocGen strategist Roland Kaloyan, precisely because they’re European companies that don’t have to worry so much about Europe:
The Seven Wonders of Europe also have a relatively limited exposure to Europe (23.4% of sales) versus 44.2% for the STOXX 600 as a whole. In our view, this probably explains their strong re-rating (forward P/E of 27.2x), and why they are trading at a 110% premium to the STOXX 600 (13.0x)” wrote.
Novo Nordisk, LVMH, ASML, and SAP seem to be everyone’s primary suspects. So, if not a Magnificent Seven, then perhaps a Fab Four? Or, if acronyms are more your thing, simply SNAiL.
Let’s crunch down on Goldman’s Granolas. The diverse grouping, which the bank dubbed a “European Champions League”, encompasses everything from oats, nuts, seeds, honey healthcare to luxury goods and IT.
The bank’s analysts put together a chart, rebased to 2021, showing that their multi-grain grouping had kept pace with the single-sector-flavoured Magnificent Seven.
But that chart looks quite different if you start from January 2023. (And Alphaville is pretty sure we only started talking about the Magnificent Seven in 2023.)
The miracles of rebasing!
Now, to the individual ingredients. GS strategist Guillaume Jaisson writes that the Granolas accounted for 60 per cent of Stoxx 600 gains in the past year.
That might be true, but it wasn’t exactly a collective effort. Just look at Roche (down 15.8 per cent in 2023, and a further 4.6 per cent year-to-date in 2024) and Nestlé (down 9 per cent and 5.1 per cent over the same periods). In fact, Roche has had the biggest negative impact of any single stock on the Stoxx 600 since the start of last year. . . make of that what you will.
Some of the Magnificent Seven might have lagged their peers’ impressive gains since January 2023, but even the worst performer, Apple, was still up more than 30 per cent at time of writing (when they were midway through a no-good-very-bad session).
What about the other the other propositions? The standout selections are Citi’s inclusion of Ferrari and Richemont and SocGen’s choice of Hermès. These, at least, have a common theme — and one that’s fairly unique to Europe: luxury.
They’re also having a pretty good year so far. Ferrari, Richemont and Hermès have all added more than 20 per cent since the start 2024, while sector heavyweight LVMH has gained around 15 per cent. Could luxury be the foundation for a cohesive European Magnificent [Insert Number Here]?
It’s a promising start, but LVMH simply isn’t Nvidia (up 72 per cent year-to-date) and even the shiniest handbags don’t attract the same desperate frenzy as AI. A rebound in consumer confidence might boost demand for shiny leather goods and champagne, but probably not at the exponential rate of semiconductors.
At least the Magnificent Seven have a common theme. In Europe, strategists seem to be scrambling for words to describe a set of companies that share a continent, but little else.
The problem, according to Jefferies’ chief economist and strategist for Europe, Mohit Kumar, is that the Magnificent Seven offers both growth AND quality. He “just [doesn’t] see the equivalent concept” in any sector in Europe.
That leaves us with these messy — or, in the more upbeat terms of both Goldman Sachs and Citi, “more diversified” — groupings.
But isn’t that just good, old-fashioned, stockpicking? Does it really need a quirky nickname?
Snark aside, Alphaville was curious: could any combination of decently-sized European stocks have beaten the Mag7?
We didn’t want to be tied down to the largest companies, so sought seven Stoxx 600 members that could, on a pure percentage gain basis, have bested the Magnificent Seven, which have climbed an average of 156 per cent since January 1, 2023 (mainly due to Nvidia).
This, it transpired, was surprisingly difficult. If we average the gains achieved by the Stoxx 600’s seven highest-performing stocks since the start of 2023, we get a figure of 172 per cent (mainly due to Rolls-Royce).
So who made the cut for our European (Retrospectively) Magnificent Seven?
🥁
Inspired by Goldman Sachs’ questionable naming practices, Alphaville is proud to present the BLUPARR stocks (aka the “Bloopers”): BE Semiconductor Industries, Leonardo, UniCredit, Pandora, ASM, Rheinmetall, and Rolls-Royce. Attentive readers will note that none of these stocks made it into the Granolas, Super Seven, or Seven Wonders of Europe.
Now, there are a couple other stocks we could have mixed in without dragging the average below the Mag7 (namely Melrose Industries and Bank Polska Kasa Opieki) — but is remarkable is just how hard it is to find a winning group, even with the benefit of hindsight.
In fact, without Rolls-Royce — which gained 301 per cent over the period — it would be impossible to find any seven stocks on the entire Stoxx 600 that could’ve matched the gains of the megacap Magnificent Seven.
So, what can the Bloopers tell us about European equities? Obviously, absolutely nothing, but it’s about as good as any other approach.
