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Falling since 3 years.
Available for 2017 (in CHF) respectively 2019 (USD) prices.

Falling only 3 years?

Because I mentioned Nestlé, without saying anything more than "the price is down", I think I am obliged to add a few details (especially after finding something completely new for me I don't like).

I waited for many years for Nestlé to be within reach, price-wise.
A while ago at around CHF 95 I finally bought my first shares (and quickly sold them again). I was wrong, or at least my timing was (CHF 82 now). But as lower it gets as more tempting it is, as a economically great company which is out of favor.

There is a reason for it's price coming down since years. Nestlé has problems. Not market saturation, in my view. Rather a problem of reputation shattered by a chain of continuing mistakes: a) Water scandal (supposedly(!) contaminated, in France), b) heavy palmoil usage (linked to disappearing rain forests), c) unnecessary animal tests/killing, d) contaminated baby milk powder. a+d were one-time events with consequences so strong that the firm surely does anything to avoid repetition. On b they are seriously working and are very transparent about it.

Remains constant critique on their water usage. Plus c --- of which until shortly ago I didn't knew and which for me personally is the "No-go": Testing&killing of animals for Botox treatments in their "Skin Care" program. And indirect animal cruelty, for example in form of being responsible for the breeding of heavily overweight animals to test their "light" animal foods. I hope the constant critique on c causes them to change those practices so that I can buy them, because:

Nestlé for me is a (economically) longterm great company which is in distress because the "Zeitgeist" is against it. But "Zeitgeist" is temporary, is fluctuating. Nestlé since many decades is not. So the company fell from grace, is shunned and out of favor - but still as dominant in it's areas as before which might make a great longterm investment case.

Likewise, I've been looking at this one for a long time waiting for an entry point and made it just under a 10% position on the Swiss @83 CHF yesterday.My interest piqued years ago after watching a few Bruce Greenwald videos on the company and will now form part of my forever portfolio. I like the valuation, long term outlook and also wanted something European so it fits the bill nicely. The pound is fairly strong atm too compared to recent times.

do you have the particular video where he talks about it?

There was one from 2021 and another from 2013 and they've both disappeared. Google searched

And in dollar terms current IV for Nestle IMO is. NSRGY

2024 EPS 5.75 x 9% growth for 5 years = 8.85 x 25 PE = $221, 9% desired market return x 5 year to present = IV of 143 vs 100 43/143 = 30% below IV.

Nestle trailing 5-yr EPS growth is 4.7%, 10-yr EPS growth is 3%.
Why do you expect future growth to be 9%?

And with growth in low single digits, 25 PE is very unlikely.

Most food companies trade at low PEs.

Nestle might emulate Coke; multi-decade stagnant share price as valuation compresses to new low growth reality.

Management guidance c8-10% based on expected and ongoing cost reductions. currency averaging out and also upping share buybacks. Plus a 3% dividend on top.

To add 100 to 221 over 5 years gives me 17% per annum plus 3% dividend. Yes that's with a PE of 25, I'm sure that ratio is possible also at at points in the next 5-10 years.

https://ycharts.com/companies/NSRGY/pe_ratio look at 5 year tab.

Nestle trailing 5-yr EPS growth is 4.7%, 10-yr EPS growth is 3%.
Why do you expect future growth to be 9%?

And with growth in low single digits, 25 PE is very unlikely.

Most food companies trade at low PEs.

Nestle might emulate Coke; multi-decade stagnant share price as valuation compresses to new low growth reality.


My thoughts exactly. Nestlé's sales and income are basically stagnant. If they were at 10 times current net income, I think it would be a good investment, with low (but not zero) chance of losing a lot of market share, and providing for a decent return. But at >25x net income? It seems to me the only solid argument is that the multiple has often been higher in the past, so maybe the multiple will revert to what it was in the past, but what is the specific reason for believing this?

I just bought shares in a different European company X with similar sales and net income in the last 5 years, compared to Nestle:

   2019  2020  2021  2022  2023
Nestle:   96    96    96   103   111
          13    14    19    10    13
X:       283   272   285   299   356
          21    14    22    53    27

Both companies show slow but unspectacular growth, and both companies are having a bad, but not catastrophic, year, with sales and earnings down a few percent compared to last year. Nestlé has a market cap of $258b, about 21 times ttm earnings, and my company X has a market cap of $55b, 3 times ttm earnings.

Any guesses about which falling knife I'm talking about? And any thoughts about why Nestle would be worth so much more?

Volkswagen

https://www.youtube.com/watch?v=PvMJx3Z1nwQ&t=914s put me off somewhat

Volkswagen

Right. Here is the table, corrected for format, and even the net income numbers got messed up, hopefully everything is right now:

                  2019  2020  2021  2022  2023  market cap
Nestlé: sales       96    96    96   103   111
        net income  13    14    19    10    13  $258b (20x)

X:      sales      283   272   285   299   356
        net income  15    10    17    16    18  $ 55b (3x)

All figures in billions of US$.

Hi DTB.

The auto industry is in the too hard pile for me esp with all the BYD adverts we have on TV over here in the UK ATM and a new dealership opening nearby, advert features what looks like an amazing vehicle for 10k less than an equivalent Audi / Volkswagen and 700 mile range! Which must be best in class.

On top of that we have Teslas everywhere and far less Volkswagens. (We have an Audi and Volkswagen in our household and love the product)

I like Nestle with stable cash flows, valuation and the fact they are looking at costs, organic growth and buybacks as a three pronged strategy. It's like comparing apples and oranges IMO.

I recently purchased OXY @ 50, I don't normally invest in oil either but I did a lot of research to try and unpick why Buffett would like it at $60+ and it makes a lot of sense to me. Eg average oil prices going forward, amazing assets and fantastic management /capital allocation.

I can't get to grips with Volkswagen nor DG in my opinion.

My IV for Nestle is $140ish and Oxy c$85-90 so nice discounts on both atm. Although OXY is now up c5%

The auto industry is in the too hard pile for me esp with all the BYD adverts we have on TV over here in the UK ATM and a new dealership opening nearby, advert features what looks like an amazing vehicle for 10k less than an equivalent Audi / Volkswagen and 700 mile range! Which must be best in class.

On top of that we have Teslas everywhere and far less Volkswagens. (We have an Audi and Volkswagen in our household and love the product)

I like Nestle with stable cash flows, valuation and the fact they are looking at costs, organic growth and buybacks as a three pronged strategy. It's like comparing apples and oranges IMO.



I don't know, I think both are under some existential threat. Perhaps Volkswagen more so than Nestlé, I will grant that. But 3x earnings instead of 20x earnings is already pricing in a catastrophic decline, and while I think EVs will be a challenge, I think the transition is going to be much slower than many people believe. For one thing, a lot of EV purchases are because of very generous incentives that are unsustainable. I just bought an EV in Canada because I get a quarter of the price paid for by the federal and provincial governments where I live, and because I then get cheaper operating costs every year thereafter. But with EVs now at about 18% market share in Quebec, the provincial government has announced that the subsidies will be phased out over the next 2 years. In Ontario, the percentage of new vehicle sales that are EVs is 5%, and that is with the federal subsidy still in place. Imagine what it would be if there were no subsidy, which I think is inevitable in the next few years. But the fact of life is that governments can not indefinitely provide this kind of massive financial support for a big ticket item that so many people buy. And that's without considering the fact that our road system is entirely financed by gasoline taxes that EV owners do not contribute to. This is another policy that is not sustainable as the percentage of EV owners goes up - eventually, EV owners are going to have to finance road upkeep some other way, which will remove some more of their economic competitiveness.

So I think the transition, which has been fairly quick so far with massive subsidies, is going to slow down a lot - the economics of buying an EV with no government subsidies still doesn't make much sense for most drivers.

OK, but eventually, yes, EVs will win the day. I just think VW will find a way of making EVs, maybe in China, that are competitive with BYD's products, in places like Europe where BYD is allowed to compete. I also owned an Audi hybrid, which was a great car, and I now own a Mazda EV, and my daughter has a Mitstubishi hybrid. Gasoline car makers can also make good EVs, and I think we're seeing that now as Tesla's market share comes down, taken up by the traditional carmakers.


I recently purchased OXY @ 50, I don't normally invest in oil either but I did a lot of research to try and unpick why Buffett would like it at $60+ and it makes a lot of sense to me. Eg average oil prices going forward, amazing assets and fantastic management /capital allocation.

I just bought some more, too, actually the WT warrants that move in lockstep with the shares, just to get a little leverage. They're at about 14 times earnings, or 11.5x future expected earnings, and that's before pricing in a possible war in Iran.

But to own Nestlé at 21x earnings, you have to think they are a really safe bet to improve earnings, and I just don't see why I should believe that. DG has a better price (14x earnings), but I like you can't convince myself that they are really going to be able to counter the threat from cheaper, more efficient retailers like Walmart and Amazon. The fact that their recent bad performances are being blamed on their target customer feeling pinched is to me a very alarming development - I thought they were anti-fragile, and would benefit from tough economic conditions, as people move down from higher-end retailers to dollar stores. If they are hurting now, maybe they will always be hurting?

People don't really need dollar stores, or processed food, but they will always need oil and cars, so I want to own an efficient producer of oil and cars at a cheap price. If there really is a big economic slowdown, both VW and OXY will go down further, so I want to be ready to buy more, but a small position in both makes sense to me already.

dtb

Sold it the other day and purchased more OXY. Like you say I looked at the long term trend for Nestle lowered the EPS estimates and presented a lower terminal valuation and only forecast 6%pa return over 5 years. IV therefore drops to c$85-90 if seeking a long term market average return. So sold.

Speaking of German multinationals nobody wants touch with a ten-foot pole, Bayer might be worth a look. The RoundUp / glyphosate litigation seems likely to drag on somewhere between "a while yet" and "forever," but if it's closer to the former than the latter, the current price might be pretty cheap. Since there's probably no informational advantage to be had there, it might be better to think of it in terms of an asymmetric bet rather than a true workout. Provided Bayer remains a going concern, there is some price at which the risk is very attractive.

Didn’t they purchase the glyphosate litigation? Why would I want to own a piece of that kind of decision making?

Nestle has cut growth forecast a second time this year.

Nestle said it now expects 2024 organic sales growth to be around 2% and an underlying trading operating profit (UTOP) margin of about 17%. In July, it cut its organic sales growth forecast to at least 3% and saw a moderate increase in its UTOP margin from 2023's 17.3%.

https://www.reuters.com/business/retail-consumer/n...

Another, more detailed article on Nestle earnings miss and changes in the pipeline.

https://www.bnnbloomberg.ca/business/2024/10/17/ne...

Didn’t they purchase the glyphosate litigation? Why would I want to own a piece of that kind of decision making?

Clearly the Monsanto acquisition has been disastrous. I stipulate bad management, a huge liability, uncertain outcomes. For you, and probably most other investors, this makes Bayer simply untouchable. That's fine. Perfectly valid perspective.

But if Bayer survives the litigation, contains their liability, and remains a going concern, what's it worth in ten years? 50B, 60B, 70B Euro? Pencil in what you like for those probabilities, discount for time and a margin of safety, and there is a price where it's a good bet. This is also a valid perspective.

For reasons I explained I hesitate to buy Nestlé - - - which is a pity as this Giant which I am sure will see better times again is dropping like a stone, available now for 2016 prices.

... available now for 2016 prices.

More like last half 2017 or early 2019 measured in US dollars, but I get your point.

I guess the problem is, despite their being a formidable firm, it isn't one that has demonstrated any value progress in a long time. In the last five-or-so years, sales and earnings are flat, revenue and cash flow are flat to down, debt is up. A flattish price makes some sense in the face of flattish observable value.

This isn't a bearish call by any means. I had been waiting for them to be on sale (relative to usual) for a long time, and I appreciate many of the things that they have historically been very good at. But now I look and I have to decide if they're just having a rough patch or truly damaged goods. And I don't have enough insight into which it is.

If it were dirt cheap that would offer a margin of safety to cover some of my ignorance, but we aren't there yet.

Jim

>> available now for 2016 prices. <<

Jim: >> More like last half 2017 or early 2019 measured in US dollars, <<

It's 2016 prices in CHF (Swiss Francs).

Perhaps 15 x TTM EPS 4.82 and a turnaround story, so c$70 per share NSRGY. Sounds too cheap but could drift that low.

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