Goldman Sachs says investors should look to a group of stocks it dubbed the 'GRANOLAS' to profit in the current crisis

• Companies with a combination of stable growth, low volatility and attractive dividend yields will be the ones that prosper in the coming economic cycle, according to a Tuesday note from Goldman Sachs.

• Goldman strategists have dubbed the 11 largest stocks in Europe (in healthcare, consumer basics and tech) that have strong balance sheets as the GRANOLAS.

• "In the US, tech is still likely to remain the long-term winner. In Europe, it's more likely to be a combination of structurally strong and/or stable sectors: Healthcare, Consumer staples and Tech," strategists at Goldman Sachs said.
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For the approaching economic cycle, companies that will be in the lead are those that have strong balance sheets, stable growth and low volatility, Goldman Sachs said.

In Europe, a small number of stable growth companies will be the winners in the market, and the strategists at Goldman Sachs have nicknamed them the "GRANOLAS."

That moniker is derived from 11 European companies with relatively strong balance sheets, low volatility growth and good dividend yields:

Glaxosmithkline, Roche, ASML, Nestle, Novartis, Novo Nordisk, L'Oreal, LVMH, Astrazeneca, SAP, Sanofi.

Expansion of stock valuation is unlikely to drive the next approaching economic cycle — whether it will be a strong bull market or not — since interest rates are at or near zero, the note said.

In place of a "valuation expansion," strategists led by Peter Oppenheimer say that the leaders in the market will be those companies that are attractive to growth-starved investors, have healthy balance sheets and sustain steady dividends in a yield-starved world.

Read more: Goldman Sachs recommends investors buy 'quality at a reasonable price.' Here are the firm's top 10 stock picks that fit the bill.

The strategists said: "In the US, tech is still likely to remain the long-term winner. In Europe it's more likely to be a combination of structurally strong and/or stable sectors: Healthcare, Consumer staples and Tech."

The "GRANOLAS" may not all perform well, but generally have some growth and stability in earnings and dividend yields are attractive, the analysts said.

History shows, in a bear market recovery, the losers tend to be those stocks that rally the most in eventual economic recovery, especially earlier in the period, the note said.

"The leadership of the market in recent weeks supports the view that it is the policy support from governments and central banks — which has helped to reduce tail risks — that has driven the recent rally, rather than a strong increase in growth expectations," the strategists said.

Start of a new bull market?

The 10-year long bull market — the longest in history for the US — came to an end on February 19, "just a few weeks short of its 11th birthday."

Whether the market is in a new bullish environment or will drop again remains unclear, the note said.

Read more: The manager of the best small-cap fund of the past 20 years explains why he's betting big on a consumer recovery — and shares his top 4 stock picks in the struggling sector

Continuation in the digital revolution

Technology was the main sectoral winner in the past economic cycle and is likely to be at the top for some time, the note said.

While US FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks are worth more than the annual gross domestic product of Japan, the areas of business these companies represent are transforming the way business is done and how consumers consume, the strategists said.

There are likely to be challenges depending on political developments, higher taxation and regulation for some companies in the tech world, they said, but the digital-data revolution is still underway.

"In the longer run, much will depend on how much capacity destruction occurs as a result of the crisis and, therefore, how significant are the bottlenecks in supply chains," the strategists said.

"This may be very different from the post financial crisis era, where a collapse in the cost of capital and booming credit markets allowed many weaker companies to remain in business – a form of zombification."

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