JPMorgan has released a market strategy report analyzing two notably underperforming sectors in European portfolios over recent years: the European "Granolas" group of eleven major stocks and the French equity market. The investment bank believes that the risk-reward profile for Granolas is improving, while French stocks are poised for a potential rebound.
**Granolas Risk-Return Profile Shows Improvement**
The Granolas have lost their former luster. This group of 11 major European companies—including GlaxoSmithKline, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L'Oréal, LVMH, AstraZeneca, SAP, and Sanofi—was once a market darling but has significantly underperformed the broader European index by approximately 25% since early 2024. Their market capitalization as a percentage of total European market value has declined from a peak of 27% at the beginning of last year to 20%.
JPMorgan notes that despite weak stock performance, Granolas' earnings have not deteriorated. The group's earnings per share growth is projected at 8% for 2025, while overall European market earnings remain essentially flat. Consequently, the valuation premium that plagued Granolas has been corrected, with current price-to-earnings ratios trading at a 6% discount to the 10-year median, returning to reasonable levels.
Notably, while Granolas' free cash flow yields have historically lagged behind other European stocks, this gap has been gradually narrowing. Additionally, cash reserves on Granolas' balance sheets increased from €91 billion in 2023 to €106 billion in 2024, while share buybacks expanded significantly from €23 billion in 2023 to an annualized €36 billion in 2025.
JPMorgan acknowledges that some stocks within the Granolas portfolio face significant uncertainty regarding their outlook, but believes most concerns are now reflected in current prices. Despite U.S. threats of 100% tariffs, analysts consider the impact on European pharmaceutical companies to be "manageable."
JPMorgan maintains "overweight" ratings on ASML, Novo Nordisk, AstraZeneca, SAP, and Sanofi.
**French Market Positioned for Potential Rebound**
The French stock market represents another underperforming sector, trailing the broader market by approximately 15% over the past two years, with French banking stocks lagging their eurozone peers by as much as 30%. Compared to the STOXX 50 index, French equities currently trade at a significant discount—a situation historically seen only during major crises.
JPMorgan believes French long-term bond yields are unlikely to continue rising, and negative shocks may temporarily subside following the government's failure to pass a confidence vote. From a contrarian investment perspective, French equities present attractive opportunities.
The bank emphasizes that uncertainty remains elevated, with France potentially facing another no-confidence vote in early October, which could trigger further volatility. However, JPMorgan believes parties may ultimately reach a budget agreement acceptable to markets. Even if new elections occur, negative impacts on risk assets would likely be temporary.
Should French bond prices stabilize, French equities' performance relative to the broader market is expected to stabilize as well.