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Thursday, February 25, 2010

Nestle - Evergreen FMCG Stock To Buy

Five years ago, the stock of Nestlé India was at Rs550. Today, the stock is pushing Rs2,500. Shareholders, who had bought this stock five years ago, made a return of 261%, plus 22% of dividend.

Nestle is one of the best performing stocks from the stable of safe stocks to buy among Indian Stocks. Consistently well performing FMCG business, best of the brands and distribution network are the strong plus points.

Stock investment return of 261% and 22% dividend makes up total return of 283% over five years. That is more than 20 years of return from your fixed deposits! Of course, the stock has been down a few months in these five years: once when the Indian market crashed 30% in a month (May-June 2006) and again in early 2007. Those were the times to buy it.

Shareholders got another chance to buy this stock in 2008 when the price crashed from Rs1,800 to Rs1,200. Nestlé has been a great play on the Indian consumption story because it has a clutch of brands that have amazing competitive advantage. It is not easy to combat its dominance in instant coffee (Nescafé), confectionery (Kit Kat, Polo and others), baby food and milk, where it has 85% market share (Cerelac, Nestum, Lactogen, Nestogen and Nan), and noodles (Maggi).

Every few years, the company adds a significant new business vertical where it establishes a slew of huge brands. Two decades ago, it was Maggi; most recently, it was liquid milk and its various derivatives. All this has allowed Nestlé to notch up an average RoE (return on equity) of 92% over the past five years.

When should you buy stocks of Nestle? Buy when stock valuations come down to 2.5 times sales and 11 times operating profit.
Ref. & Source: MoneyLife

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