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International Investing: This Stock Will Weather the Storm

Posted December 21, 2007

Louis Basenese of The Oxford Club reveals the stock that won’t let anything get in its way from making positive gains, no matter how volatile the market. 

Baltimore – (TFN): The following is taken from the transcript for the TFN Smart Investing Market Insights program filmed December 19, 2007.

Krista Das:
Welcome to Smart Investing Market Insights on TodaysFinancialNews.com.  I’m Krista Das.

If your portfolio isn’t working as hard as it should, this show is for you.  With so much market uncertainty, you have to wonder if there’s a stock out there that’s immune to a volatile market.  My next guest has the answer.  Serving on the advisory panel for InvestmentU, Louis Basenese is one of the sharpest financial analysts in the industry.  Louis, welcome to the program.  

Louis Basenese:
Thanks, Krista.  Glad to be here.

Krista Das:
So tell us, have you found a company that’s not going to let anything get in its way from making positive returns?

Louis Basenese:
Well, I think that’s a difficult question and a difficult task, but I think have.  It’s trading on the pink sheets, but ironically, it’s the world’s largest food company.  It’s Nestle.  It immediately comes to mind as the ultimate, non-cyclical investment.  Everyone’s got to eat, and demand for food is ever increasing.  If you have any doubt, you can scoot over to any of the world population calculators, and you quickly see that the world population is expanding by about 75 people every 30 seconds.

Now, I have to be honest, talk of non-cyclical investing isn’t really sexy, but I think the story here is different.  Nestle represents what I like to call an iron-man stock, playing defense and offense, and doing both particularly well.

Rather listen than read? Play the video instead…

Krista Das:
So what makes it such an iron-man stock?

Louis Basenese:
Well, I think on the one side, Nestle, from a defensive perspective, its portfolio covers practically all food and beverage categories, and they’ve got very well-known brands including Dreyer’s, Lean Cuisine, San Pellegrino and Perrier, just to name a few.  In fact, like I said before, it’s the world’s largest food company, and I don’t think a better defensive play exists. 

From a stock performance standpoint, if you look at the ten-year performance, you can see that Nestlé’s performed very well throughout various economic downturns and even recessions.  The stocks return an average of about 15 percent per year.  That’s almost double the return of the S&P 500. 

It’s instructive to look at the recent performance.  During the midsummer swoon, the stock really barely budged.  It didn’t move too much at all, and since then, it’s only headed higher.  I think Nestle, in one stock, you really have a company that can thrive in any business environment, and it’s essentially the bluest of blue-chip investments out there, despite the fact that it trades on the pink sheets.

Krista Das:
Okay.  So what about Nestlé’s fundamentals?  And what are its plans for continued growth?

Louis Basenese:
Well, like I said, it’s an iron-man stock.  We covered the defense, but on the offensive side, you might be surprised.  It’s an $80 billion a year company as far as revenues and you really think the law of large numbers has got to kick in somewhere.  But there’s a lot of characteristics here that I think will contribute to Nestle’s earnings growth. 

The first being it’s really doing a good job of refocusing and repositioning its portfolio into higher margin segments, particularly in the nutrition, health and wellness areas.  Second, the company, like many others, is exploiting double-digit growth opportunities in emerging markets and also making good use of acquisitions. 

The next thing that you really want to think about with Nestle is their GLOBE project.  A lot of companies have different names that they attach to it, but it’s essentially a cost-cutting initiative.  And it’s still really early in the goings on here, so you can see significant improvements just from the economies of scale that they’re going to realize.

The next thing you really want to turn to, fourth, is on the earnings front, you can expect to get a jolt.  Nestle has some sizeable stakes in L’Oreal and Alcon, that they’re going to look to divest.  Fifth, you look at there’s been a lot of stock buybacks going on in the market right now.  Nestle just announced a massive stock buyback of $21 billion.  And typically, stocks – companies that go into the market and buy their own shares back based on research outperform the general market by as much as 45 percent in the next four years.

And last – I know this is a long list here – but last and certainly not least, owning Nestle provides a great dollar hedge.  The dollar is everyone’s favorite whipping boy right now.  And since the shares are denominated in Swiss francs, if the dollar continues to slide, the shares will naturally head higher, no matter what happens with the underlying business.

At the end of the day, this is really – Nestle, to me, represents a stock you can feel comfortable recommending to even your mother in law.  The downside is very limited, so you won’t catch any grief, and there’s plenty of upside potential.  And in the end, if you add it to your portfolio, it’s only going to help, not hinder, the performance in the year ahead.

Krista Das:
Louis, thanks for the recommendation.  Nestle sounds like one solid company.

Louis Basenese:
It’s my pleasure.  Thanks again for having me.

Krista Das:
If you would like more investment tips from Louis, you can do so by clicking on the screen or go directly to TodaysFinancialNews.com. 

Until next time, here’s to great profits from Smart Investing.

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