Nestle SA Reg Shs. Ser. B Spons (ADR) (NASDAQOTH:NSRGY)

CAPS Rating: 5 out of 5


Player Avatar mukwonago53149 (< 20) Submitted: 2/9/2011 1:15:05 PM : Outperform Start Price: $47.95 NSRGY Score: -0.87

The world is now in the early stages of a growing food crisis and it’s probably going to get much worse before crop yields become abundant again. But don’t go looking to plunge into this bull market right now. I’d wait before trying to catch what ultimately will be a falling knife.Keep some powder dry ahead of the next correction in commodities. When the next hit comes, buy the grains, the fertilizers (seed companies) and soft agricultural commodities. The world has gone almost commodity-crazy since late 2010. But as you’re waiting for the next buying opportunity, you might want to take a look at Nestle ADS (OTC: NSRGY). Nestle ADS has gained a cumulative 27.5% and is approaching a 52-week low on the Zurich Stock Exchange. The stock pays 53% more than benchmark Swiss government bonds (Nestle yields 2.9%) and earns more than $200 million in gross sales every single day. The market has punished Nestle over the last several weeks because of a cocoa export-ban in the Ivory Coast - the world’s largest grower of cacao. Plus, other input costs for Nestle’s products like sugar, coffee and milk have also increased. The market is discounting a profit-squeeze for the world’s largest food company.I don’t doubt the ongoing food-price blitz will take its toll on Nestle. Yet many investors also underestimate the company’s large commodity hedging program and its numerous commodity farms worldwide. But the way I see it, Nestle at this low price also offers a hedge when commodity prices take a hit over the next few weeks or months. As commodities sink, Nestle should mount a smart rally - a commodity hedge, plus a 3% dividend makes Nestle a smart place to park some money right now.

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