Nestlé Stock: Greatest Reason Why You’ll Taste Investment Success

Yes, people are worried and spending less. You know, economic worries. That means most FMCG companies are suffering. Nestlé is no different. If and when people begin to consume more, Nestlé will rebound.

Yes, Nestle’s products are fun products, meant mostly for city dwellers. More than most other FMCG companies. And economic slowdown hurts such products far more than the essential goods. Again, when the pall of gloom lifts, Nestlé will rebound.

Yes, Nestlé has very strong brands. It is dominant in most categories it operates in. Warren Buffett says,“Time is the friend of the wonderful business, the enemy of the mediocre.” Since Nestlé is a wonderful business, sooner or later it will rebound.

All valid reasons why you’ll taste investment success with Nestlé stock.

Valid reasons, but not the greatest reason.

So, can you guess what is the greatest tactical reason why you’ll taste investment success with Nestlé stock?

(Disclosure: I do not hold a position in Nestlé India at the time of writing this post. Please also read the terms of use.)

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Categories: Indian FMCG Stocks: What Are The Future Prospects?, Nestle Stock: Value Investing Analysis | Tags: | 10 Comments

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10 thoughts on “Nestlé Stock: Greatest Reason Why You’ll Taste Investment Success

  1. Govind

    Nestle has great brands and strong moat (entry barrier in baby foods). So the stock is a must buy when there is a slow down else it will always be value investor’s bird in the bush.

    • Agree that it does have a strong moat in several of the categories it operates in.

      Also agree, that value investors get frightened with the valuations (PE ratio of 40+) and never commit to Nestle India. So, we desire but never obtain the stock.

      What I’m referring to is a tactical blunder that Nestle India has committed. Which when resolved, will be beneficial to shareholders.

      • Govind

        Please enlighten me what is that tactical error you refer? I feel one can do SIP in Nestle say for 10 or 15 years without worrying about the valuation. Company like Nestle and ITC are also value stock if we have a longer term view. They are trading at a attractive valuation if we consider their intrinsic value 10 or 15 years down the line. What you say?

  2. Balasubramanian.K

    Is it because of its foray into medial therapeutics and laboratory testing?

    I am a careful and an eager layman reader of your blogs and I want to know the real reason as felt by you.

    Tx.

    Bala

  3. Hello, Bala!

    First of all thanks for reading. And thanks also for signing up a long time back. :-)

    Also, this is blog is meant for laymen by a layman (me!). So, we are all in the same boat. My experience with so called ‘professional’ investors has been quite amusing. Even the great Ben Graham mentions how we don’t suffer from some of the handicaps of the ‘professional’ investors.So thank God, we are all laymen!

    As for Nestle’s foray into medicines: Well it is one of the jobs of FMCG companies to try out new products, isn’t it? Some of them will sink, some of them will swim. Can’t blame the company for that.

    The real tactical blunder that Nestle has committed in the last few months lies elsewhere.

    Regards,
    Satyajeet

  4. K Praveen

    In the management’s words they say it is about underestimating the competition (ITC) and reliance on improving margins (increasing prices) as their blunders.

  5. Jinto

    I do not think Nestle can repeat the success in future. It will give you a return above a FD but I am not expecting it give a very high return. My reasoning: 1) Nestle used to hike prices of their products very often but now they are not doing it (more competition?), 2) Very low volume growth. 3. 50K market cap for a food company? I think this has hit the top (yes, there are no listed peer to compare)

  6. Jinto

    I forgot to mention one more thing, “Standard pack sizes” was a big blow to Nestle and other FMCG companies. Earlier FMCG companies were able to fool buyers by giving the products at same price point but less quantity, which is not possible now. From a consumer point of view this is a great but FMCG companies will have to raise prices. Also the rupee depreciation makes India market not attractive for the companies based outside of India. Please add your thoughts.

  7. Quite right, Jinto!

    Very well put, must say.

    In fact, points no.1 & 2 are closely related. While Nestlé India does enjoy pricing power, it seems to have overplayed its hand. As a result, volumes have become anaemic. Basically the company treated its demand as price-inelastic and is discovering otherwise! :-)

    The point about standard packs is also well taken.

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