Blue Chip Stock: Here’s A Stock that Keeps On Winning, No Matter What
by Louis Basenese, Advisory Panelist, Investment U
Associate Investment Director, The Oxford Club
Wednesday, December 5, 2007: Issue #738
Stuck in traffic yesterday, on my way to meet a friend and former Morgan Stanley analyst, I decided to swap out Bloomberg for the “Big 80s” channel on my Sirius satellite radio. (Love the service, hate the stock, in case you’re wondering.)
Sure enough, I surfed into the chorus of one-hit wonder Matthew Wilder’s reggae-infused “Break My Stride.” Remember it?
“Ain’t nothing gonna break my stride, Nobody’s gonna slow - me - down, Oh no, I’ve got to keep on moving…”
My mind drifted.
Not to images of tight-rolled pants, gravity-defying hair dos and hyper-color shirts, thankfully. But to this instead: With so much uncertainty pressuring the markets right now - from subprime losses and tightening credit markets to a China bubble and a Fed about to exhaust its interest-rate morphine drip - is there a blue chip stock that can channel Matthew Wilder? A company that nobody or nothing can slow down?
Nestle (OTC: NSRGY.PK) immediately came to mind. Here’s why…
The Ultimate Non-Cyclical Blue Chip Stock
Everyone’s got to eat. And the demand for food is ever increasing.
Just scoot over to the calculator at www.census.gov to see for yourself. The world population expands by about 75 people every 30 seconds.
I know, talk of non-cyclical investing isn’t sexy. But the story’s different here. Nestle represents an “iron-man” stock, playing defense and offense. And doing both particularly well.
On one side, Nestle’s portfolio covers practically all food and beverage categories, including well-known brands such as Dreyer’s, Lean Cuisine, Buitoni, Stouffers, San Pellegrino, and Perrier. In fact, Nestle is the world’s largest food company.
In my opinion, no better defensive play exists.
Even better, Nestle’s already proved it’s recession-proof. Over the last decade, the stock returned an average of 15% per year - more than double the return of the S&P 500.
The more recent performance is similarly instructive. Not only did shares barely budge during the mid-summer swoon. They soldiered higher and higher. Take a look…
Clearly, Nestle thrives in any business environment, making it perhaps the bluest of blue chip investments.
It’s this virtual immunity to all things that earned the stock a spot in The Oxford Club’s Anti-Terror Portfolio years ago - a collection of investments meant to protect against the unthinkable. And since its inclusion, prices have more than doubled.
We’re not surprised…
$80 Billion A Year… And Growing?
While we originally favored the stock for its protective characteristics, we’re increasingly encouraged by its growth prospects, too…even though it tips the scales at roughly $80 billion in annual revenues.
First, management’s repositioning the company’s products into higher-margin nutrition, health and wellness segments.
Second, the company continues to grow by double digits in emerging markets… and via acquisitions. (Most recently, Nestle bought the Swiss mineral water company, Sources Minerales Henniez, S.A.)
Third, Nestle’s Globe project, a strategic plan that aims to boost efficiency and save costs, is now seeing significant improvements, according to outgoing Chief Executive Peter Brabeck. And as one analyst noted, the cost benefits here could be “massive.” Expect earnings to get a meaningful (and positive) boost as the plan keeps gaining traction.
Fourth, earnings should get another jolt from timely divestitures of the company’s stakes in L’Oreal and Alcon, Inc.
Fifth, Nestle announced a record $1 billion share buyback program in August. And research out of the University of Illinois at Urbana-Champaign proves companies buying back their own shares typically outperform the broad market over the next four years… by as much as 45%.
Last, and certainly not least, owning Nestle provides a dollar hedge as shares are denominated in Swiss francs. We all know the dollar is the world’s favorite whipping boy right now. So, if it keeps sliding, shares will naturally head higher. No matter what happens with the underlying business.
All told, Nestle represents the only stock I feel safe recommending no matter what’s happening in the markets. And adding it to your portfolio will only help, not hinder, performance in the year ahead.
Good investing,
Lou Basenese
Editor’s Note: Louis, a former equity analyst at one of the nation’s leading investment banks, is a regular contributor to The Oxford Club’s twice-monthly Communiqué. That’s where the Club publishes all of its premium stock opportunities, which have beaten the S&P 500 nearly 3-to-1 for five years running. To see how the Club has changed the life of one of your fellow readers, here’s his story.
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