First in a series of spotlights on our current investments
Odds are, you’ve never heard Nestlé mentioned on a financial TV show. It’s not listed on the S&P 500. It’s not headquartered in New York or Silicon Valley. It’s not even an American company.
Yet Nestlé has been a mainstay of the Norris, Perné & French stock portfolio for years – because it handily meets the goals we’ve established for the stable, secure stock investments our clients want.
Based in Switzerland, Nestlé S.A. is the world’s largest food company. It sells everything from baby food to bottled water in nearly 200 countries around the globe, under such recognizable brands as Gerber, Stouffer’s, Lean Cuisine, Nescafé, and Purina. It has done an exceptional job of adapting products to different markets and trends. Its size, scale, and efficiency is difficult for competitors to match.
Here is how Nestlé S.A. stacks up against five key investment guidelines:
Nestlé aims for organic revenue growth of 5-6% annually. (This excludes mergers, acquisitions and currency fluctuations.) It consistently hits this mark and has generated a historic return on equity of 25% – considered superior.
Strong Financial Fundamentals
Nestlé satisfies our requirements for low debt, high returns on capital and strong profit margins. Its product portfolio is largely recession-resistant, providing what Warren Buffet calls a “moat” against economic down cycles.
Competent Management Team
We have a great deal of confidence in the ability of Nestlé’s management team to profitably reinvest shareholder funds. Our trust is built on years of solid execution by management.
We believe Nestlé stock is reasonably valued relative to its earnings growth potential, especially considering the company’s 3% dividend yield. Coke and Pepsi pay similar dividends but are facing challenges from increasing consumer demand for nutrition, health and wellness. (This is where Nestlé shines.)
Roughly 75% of Nestlé’s sales are foreign and 40% of these are in emerging markets. Because we trust the company’s accounting practices and business processes, Nestlé is a safer way for our clients to add international exposure to their portfolios.