🎙️ GRANOLAS vs. Magnificent 7

🎵 Magnificent, Oh, oh, magnificent

So goes U2’s “Magnificent,” a song about the power of love and faith through life’s challenges.

Of course, it’s also a fitting song for the stock market’s Magnificent 7, which continues to dazzle nearly four years after the pandemic began. Investors keep piling into shares in companies like Microsoft, Nvidia, and Amazon.

When will the run lose steam? 🤔

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Europe’s favorite stock acronym

• Why hotel staff shortages could further raise prices

This, and more, in just 5 minutes to read.

Chart of the Day

In The News

😘 Europe’s Favorite Stock Acronym

Yeah, yeah, the Magnificent 7 get all the attention, but they’re not the only buzzworthy group of stocks driving markets. Across the pond, the GRANOLAS, an acronym for 11 stocks (GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP, and Sanofi) are driving European markets higher.

In the last 12 months, the GRANOLAS have accounted for half of the gains for the pan-European Stoxx 600 index, which hit a new record on Friday.

• Like the Magnificent 7, the GRANOLAS are great businesses — Goldman Sachs calls them “quality growth compounders.”
  

• Also like the Magnificent 7, they pack a heavy weight in stock indexes. The GRANOLAS represent about a quarter of the total market value of companies in the Stoxx 600, compared with the Magnificent 7 at about 33% for the S&P 500.

But the GRANOLAS stand to benefit in ways the Magnificent 7 don’t. That’s because Europe’s stock markets aren’t as big as the U.S.’s, meaning they have less liquidity.

• And due to a “structural shift towards passive investment (more people using broad index funds),” as Goldman’s analysts highlight, new financial inflows can help the GRANOLAS rapidly compound gains.
  

• Adding, “The GRANOLAS have even outperformed the so-called Magnificent 7 over the past two years. Their (out)performance is even more impressive on a risk-adjusted basis: with a volatility 2x lower than for the Magnificent 7.”

Why it matters:

Like their U.S. counterparts, the GRANOLAS are priced for success with high price-to-earnings ratios, but growth deserves a premium. And the GRANOLAS are doing just that, expected to grow revenue at a 7% compound annual growth rate through 2025 versus 2% for the broader European market.

• Thus, the GRANOLAS will generate nearly all revenue growth for the Stoxx 600 in the coming year or so.

After years of underperforming Wall Street, the GRANOLAS offer hope to European investors that they can catch up. Given their lower valuations, Bloomberg even calls the GRANOLAS a “cheap alternative” to the Magnificent 7.

• Still, the odds look stacked against European stock indexes for 2024. The Stoxx 600 is up 3.8% year-to-date, while the S&P 500 is already up nearly 7% and the Nasdaq is up 8.35%, boosted by enthusiasm over the AI revolution and U.S. companies’ role in it.
  

• When accounting for the U.S. dollar’s gains against the euro this year, the Stoxx 600’s performance falls even flatter.

Read more

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🏨 Hotel Staff Shortages Could Further Raise Travel Costs

Thank goodness! For a second, we thought we were the only ones totally floored by soaring hotel prices, even for your run-of-the-mill highway motel. 

Over the past two-plus years, hotel room rates have soared to new highs (~$160 per night) in the U.S. Many hotels in desirable locations (beaches, big cities, etc.) are much, much more expensive than that. 

Paying more: The hotel industry is still light on staff. There’s less housekeeping and other amenities. At the same time, hotel leaders have set their daily room rates higher and higher, partly to compensate for increased wages. After all, increasing wages is one of the only ways hoteliers have lured workers back to work. 

• As many guests have complained about on social media, hotels — even pricey ones — have largely had worse service, even as rates stay high into 2024.
  

• One hotel owner of about 24 properties in the Chicago area said he expects he’ll increase wages at his hotels by about 10% this year. Guess where that cost will be passed down to? Guests.
  

• “Consumers are going to have to pay more,” he told The Wall Street Journal. 

A lingering shortage: Employing the “accommodation sector” has dipped 9% since 2020. Reasons for the lingering shortage include:

• Hesitant workers after mass layoffs in 2020
  

• Many workers switched to other industries with better pay
  

• Immigration laws have reduced the number of seasonal workers the industry can hire

Why it matters:

With higher wages, hotel owners and managers are trying to reduce the need for many workers. They’re leaning into virtual check-ins, QR code room service, 

• “Hoteliers figured out how to do more with less,” one hotelier noted. Example: Front-desk workers also work the bar or do laundry. 
  

• Marriott’s stock (ticker: MAR) has surged 12% this year, 47% over the past 12 months, and 101% over the past five years, well ahead of the S&P 500.

The bottom line: Labor shortages and rising wages could be a risk for hotels this year while keeping prices high for travelers. Plus, unions in big markets like San Francisco and parts of Hawaii are due for contract negotiations this year, which could further drive up wage increases, thus raising nightly rates (again).

Read about some of the world’s best hotels

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😬 Immigration surges as Americans’ top concern in new poll

🛍️ Macy’s to close 150 stores — 30% of its locations

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Quick Poll

Yesterday, we asked: Are you interested in investing in Reddit amid its IPO?

— One potential Reddit investor said “yes” because it’s “the best social media platform.”

— Added another, “It’s a 50/50 case. I guess in this bull market people are thrilled for a “new big thing,” and this might be Gamestop Part 2.”

— Also on team “no,” readers wrote: “Buying a meme stock is not investing; it’s gambling.” As for “maybe,” one noted: “Use Reddit a lot, but not sure how good a business it is.”

See you next time!

That's it for today on We Study Markets!

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