Should you turn to Europe and tuck into the Granola shares?

Where could be the top place to invest this spring? Europe – according to the latest edition of the hugely influential Bank of America fund manager survey.

More than a third of the respondents – the professionals who together take care of $482billion worth of global savings – say European shares are undervalued against their global peers.

If your portfolio is concentrated in US tech stocks, then a taste of Europe may be what you need.

This can be found among the Granolas, a group of 11 European multinationals, selected by US bank Goldman Sachs, which is made up of GSK (also known as GlaxoSmithKline), Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP and Sanofi.

Yes, the name actually spells out ‘Grannnllass’.

Two are British – AstraZeneca and GSK. But all are global leaders in sectors like luxury, pharmaceuticals, beauty and software, and deserving of a place in your portfolio.

This may not seem an ideal moment to bet on Europe: the world order is shifting, and the continent is being rocked by the pace of change. But there are signs of revival and resolve to deliver long-overdue reform.

Germany goes to the polls tomorrow, as gloom over its economy gathers. But there are hopes the election could produce a conservative-led coalition which would cut corporate taxes and bolster growth.

Marcel Stotzel, manager of the Fidelity European fund, says some of the enthusiasm for Europe arises from the view that there is a widening disconnect between the prices of some US stocks and their fundamental value.

But there are other reasons. Stotzel explains: ‘There has been a deep sigh of relief over the introduction of tariffs by President Trump. It seems as if they are going to affect Canada, China and Mexico more than the EU.’

The emergence of DeepSeek, a cheap Chinese artificial intelligence system, may have rocked the share prices of the US tech titans who have spent billions on the more expensive ChatGPT.

But Stotzel argues that DeepSeek is good news for European firms because they must deploy AI and may now do so for far less.

The heightened geopolitical tensions with the US over Ukraine are one of the forces compelling investors to look at Europe.

Stotzel says European companies, such as the French industrial group LeGrand, are set to play major role in rebuilding Ukraine. This is why analysts think its shares could jump from €110.30 to as much as €126.

Meanwhile, European defence and aerospace stocks have soared this week in response to US calls for EU states to increase their military spending.

Ursula von der Leyen, president of the European Commission, has promised that such expenditure would be exempted from the normal limits on states’ budgets. Among the beneficiaries of her announcement have been shares in firms usually overlooked by UK investors such as Italian defence aerospace group Leonardo.

There have also been gains of 14 per cent to 25 per cent among the German giants such as Thyssenkrupp, the engineering and steel manufacturer. The price of Rheinmetall, a specialist in ammunition, drones and tanks, has soared by 30 per cent.

Analysts still rate Rheinmetall a ‘buy’, although the increase since the start of the year could tempt some investors to take profits.

If you are contemplating exploring Europe, this is why investors fell out of love with this region – and why it may be worth your attention now.

Why did Europe lose its bite?

For the past two years, European markets have been overshadowed by the stellar feats of the ‘Magnificent Seven’ US tech stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.

The gains made from these shares have reinforced the adage that ‘the US innovates, the EU regulates’. The belief that a bureaucratic Europe was being badly left behind in an era of American exceptionalism was amplified by the Donald Trump’s victory last November.

This sparked an exodus of investors in the final quarter. Europe’s main stock market index, the Stoxx 600, ticked up by just 6 per cent in 2024, against 23 per cent for the US S&P 500 index .

But there are moves, driven by Christine Lagarde, president of the European Central Bank (ECB), and other officials to introduce reforms and relax the stranglehold of bureaucracy.

How big should your appetite be?

The members of the Granola gang are global players. They do not depend on their domestic economies, but they do get a boost from lower interest rates.

The ECB has cut interest rates five times since last June and could order three more reductions, if inflation eases.

One of the best ways to back the Granolas is through a fund or trust such as BlackRock Greater Europe, Fidelity European or Henderson European.

But Ben Yearsley of Fairview Investing says that there are currently some bargains among the Granolas.

ASML, a Dutch business, is the world’s number one maker of the equipment required for the manufacture of microchips. Its shares have fallen 14 per cent over the past six months to €709.90, driven by the alarm over DeepSeek.

The view that DeepSeek could expand, rather than contract sales of ASML’s kit explains why analysts rate the shares a ‘buy’. The average target price is €842, although one analyst is forecasting a price of €1,057.

Novo Nordisk, the Danish pharmaceutical behemoth, is the maker of the anti-obesity drugs Ozempic and Wegovy.

Novo Nordisk shares are more than 300 per cent higher than ten years ago at 630 Danish krone, nearly £64. In common with other analysts, the broker UBS rates shares a ‘buy’, with a target price of 750 krone.

Fundsmith and Stonehage Fleming Global Best Ideas are among the funds that hold LVMH, the Tiffany and Moet Hennessy luxury goods conglomerate led by Bernard Arnault, one of the world’s richest men. Arnault, a member of Trump’s billionaire mates gang, is considering ‘bulking up’ LVMH’s production in America to exploit its ‘dynamic market’.

There are predictions that the new era of more overt glamour ushered in by the Trump administration will be good for sales of LVMH’s bags, scents and watches. The shares stand at €702.40 – and are worth holding, according to analysts.

Are there other opportunities?

IF you are looking for a thrill-packed European adventure, take a peek at the group also named for a breakfast cereal – Cheerios. They are: Coface, H Lundbeck, Evonik, Eramet, Repsol, Indra Sistemas, OTP Bank and SAF-Holland.

These lesser-known businesses operate in the fields of automobile parts, chemicals, insurance and oil and gas, but such smaller firms are difficult to research.

If you want a stake in the bounty that could flow from the lessening of regulation in Europe and the new confidence that its markets can compete with the US, the European Smaller Companies represents a route. Its managers have a special mission to find bargains.