Reluctantly, I’m selling Nestle out of Jubak’s Picks

This is a tough one.

Nestle (NSRGY) has hit the $69 target price—and then a bit–I set when I added the shares to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on September 21, 2012 at $63.75. The stock traded at $70.35 as of 1:45 p.m. New York time on February 6. That’s a 10.3% gain on this position in a little less than 5 months.

In my January 25 post on trading strategies for a momentum market I noted that it’s important to keep notes in your trading diary on how aggressive you think your assumptions were when you set an initial target price for a stock and I used Nestle as an example http://jubakpicks.com/2013/01/25/todays-market-is-ruled-by-two-different-types-of-momentum-heres-how-to-navigate/ . My original assumptions, I felt then, were pretty aggressive back in September. That suggests to me that I shouldn’t just go ahead and raise the target price just to keep this position.

This says, “sell” to me here.

The only caveat is that Nestle pays its 3% dividend just once a year a few days after the annual meeting. In 2013 that meeting is scheduled for April 11. So selling now means you give up a year’s dividend.

The decision on sell now or wait until April 15 or so comes down to how you read the risk in the current market. Read more

Buy Nestle (NSRGY)

Apparently it makes a difference whether you’re selling $1,000 raincoats or coffee capsules at 45 cents each.

On September 11 luxury goods maker Burberry (BURBY) announced that same store sales for the ten weeks that ended on September 8 were flat with levels for the same period in 2011. A slowdown in sales growth in China was a big part of the problem. The stock fell 21% on the news.

Two days later, on September 13, Roland Decorvet, Greater China Chairman for Nestle (NSRGY), said he expects the company’s sales in China to grow by about 20% in 2012. That would follow 20% growth in 2011. Decorvet projects China sales will grow at a double-digit rate in 213.

Rising wages in China as part of the government’s effort to encourage domestic consumption will increase sales in Nestlé’s coffee and dairy business and at recent acquisitions such as snack and candy maker HSU Fu Chi International and Yinlu Food Group, a maker of ready-to-drink peanut milk and instant canned rice porridge, Decorvet argues. According to the latest five-year plan, the minimum wage in China is to increase by 13% a year for the next five years.

According to Decorvet, that rising income translates into big growth in low-cost consumer goods such as Nescafe instant coffee or Kit Kat candy bars. Chinese consumers drink an average of four cups of coffee a year. The average is 150 a year in Hong Kong, 400 a year in Japan, and 600 a year in the United States.

I think you can see the logic behind Nestlé’s thinking.

The problem, if you’re an investor, is that this story isn’t especially cheap. Read more

Nestle buys market share in China’s market for infant nutrition

The news yesterday that Nestlé (NSRGY) would buy Pfizer’s (PFE) infant nutrition business for $11.9 billion has completely overshadowed last week’s stronger than expected earnings report.

For the first quarter Nestle reported organic sales growth of 7.2%. For the full year Nestlé kept its projections for organic growth at 5% to 6%. In the first quarter growth broke down as 3.1% growth in developed country economies and 13% in developing economies.

Which also tells you what you need to know about Nestlé’s acquisition. Read more

Wait to see if euro turmoil creates a better entry on Nestle (NSRGY)

If this is what qualifies as a tough year for Nestle (NSRGY), I’ll take it.

The company faces the headwind of a strong Swiss franc, which makes its products more expensive for customers pretty much everywhere else.

Costs are climbing with increases in the prices of everything from corn to sugar.

And yet for the first quarter of 2011—despite what the company calculates was a 9.8% hit from foreign exchange rates—the company saw sales for its continuing business fall by just 1.2% from the first quarter of 2010.

Organic growth, a measure which excludes currency effects, climbed by 6.4% as the company’s emphasis on growing its business in emerging economies paid off big. Read more

Call it “nutritionals,” or nutriceuticals” or whatever–but here’s how to invest in the hottest market in food

Nobody can accuse these companies of thinking short-term.

Along with its third quarter earnings report on October 7 PepsiCo (PEP) announced that it was creating a new Global Nutrition Group “to deliver breakthrough innovation in the areas of fruits and vegetables, grains, dairy, and functional nutrition. The goal is to grow PepsiCo’s nutrition business from $10 billion in revenue now to $30 billion by 2020.

Ten-years.

A few days before, on September 27, Nestle (NSRGY) announced that would create Nestle Health Science, a wholly-owned subsidiary that will incorporate company’s existing healthcare nutrition business, and the Nestle Institute of Health Sciences that will conduct research into nutritional strategies for improving health and longevity. Nestle said it will invest hundreds of millions of Swiss francs in the institute over the next decade.

There’s that 10-year thing again.

I don’t know exactly what to call this trend, but it’s big. Food companies such as PepsiCo and Nestle, and drug companies such as Abbott Laboratories (ABT) and Bristol-Myers Squibb (BMY) are all targeting it.

This has traditionally been called the “nutritionals” market. But that doesn’t seem adequate anymore.

The old name better fits the days of nutritional supplements being sold through health food stores or products designed to supply nutrition in a liquid, powder, or concentrated form to the old (Ensure) or the very young (Similac).

The new market, and I think it’s still in the early stages of taking shape, has been termed the “nutriceuticals” market to emphasize the greater degree of interaction between the processed food and drug industries, and the ramping up of spending on designing specific nutritional enhancements into traditional foods or food products.

You can see that evolution in PepsiCo’s Tropicana orange juice line which has gone from advertising the health benefits of orange juice to enhancing those benefits by adding extra vitamin C to adding vitamin D to adding calcium to the citation of the Tropicana brand by PepsiCo CEO Indra Nooyi as one of the company’s stable of products that fits with the Global Nutrition Group strategy.

The fact that the definition of the market is a little fuzzy hasn’t prevented market research groups from projecting the size of the market. Does the market include what are called functional foods, for instance? (A functional food is any food aimed to have a health-promoting or disease-preventing property beyond supplying nutrients. It includes such things as vitamin enriched Froot Loops and yogurts with live cultures.) How about organic foods? Some organics? All organics? Only processed organics?

With all those caveats, here are some projections of future market sizes. Global Industry Analysts, projects that the global nutriceuticals market will exceed $243 billion by 2015. (That doesn’t seem totally outrageous if PepsiCo is saying that it can grow its nutrition business to $30 billion in revenue by 2020). BCC Research estimates that the global market for functional food will reach $177 billion by 2013. Compound annual growth will average 7.4%. What’s especially intriguing about that research is BCC’s projections that the traditional supplement sector will be the slowest growing part of the market (at a 3.8% compound average annual grow rate) and that the functional beverage sector will be the fastest growing at a 10.8% compound average annual growth rate.

So how do you invest in this growing market, whatever it’s called? Read more