Trading Idea: Nestlé (NESN-CH)

We had an Enter Long Strategic signal on November 8, 2021, triggered by our system on Nestlé S.A, NESN-CH, the Swiss Food & Beverage company.

Our system also triggered an Enter Long Tactical signal on October 21, 2021 that imply a likely bullish acceleration. Nestlé has a rather solid track record, with a Behavioral score of 7/10, therefore the bullish signal is to be considered mainly Strategic.

Nestlé is a CHF 339 Bn market cap and the world's leading agrifood group. Revenues include powdered and liquid drinks (33% of sales), with soluble coffees (Nescafé brand), coffee capsules (Nespresso), packaged water (Vittel, Perrier, Contrex, etc.), chocolate drinks (Nesquik, Milo), soft drinks tea base (Nestea). The other segments are : Pharmaceutical, nutrition and well-being products (16%), pet food (15%), dairy products and ice creams (14%), Ready meals and seasoning products (13%), and chocolates, sweets and cookies (9%).

Nestlé is a défensive bet, and a quality stock with reasonable EPS growth. In terms of total risk, Nestle is one of the safest companies to own, as well as within the consumer staples sector, due to its conservative capital allocation. Therefore, it is an interesting stock to have in portfolio when markets enter into bumpy or correction phase as the stock’s volatility is low. Nestle looks well-positioned to outperform its Food & Beverages peers going forward due to its strong business platform. Increasing leverage also holds significant potential for Nestle to deploy more capital during market downturns and thus solidify its market positioning via acquisitions.

Revenues are expected to reach CHF 87 Bn in 2021 coupled with a 17.5% EBIT margin. EPS growth is expected at about 5-7% per year in the next 3 years. The stock currently offers a 2.4% dividend yield.

Short term catalyst : Market are going increasingly « risk-off ».

This signal looks consistent with the Food & Beverage European sector in major bullish trend. The participation of stocks in Tactical signal is rather weak at 30% while also 30% of stocks are in Strategic signals.