[OTCMKTS: NSRGY] In a day that when stock markets were relatively weak, Nestle S.A was one of the better performers in yesterday’s trading. The company’s stock was riding on the news that it is getting into the plant-based foods market. The company is already working on a meat-free burger, and if it becomes a hit with consumers, it will be a significant boost to this company’s value. With the plans to diversify into plant-based foods, Nestle could see its revenues grow since it is already a strong player in its other product offerings especially the coffee markets. This gives it some great prospects going into 2019. Over and above this focus on plant-based foods, there are a number of other factors that give Nestle S.A (NSRGY) good prospects going into 2019.
One of them is its low beta. While a low beta may be a disadvantage in a bull market, it is a safe way to protect wealth in a bear market. That’s because low beta stocks don’t drop as hard as the market. Nestle has a low beta of 0.46. This is an advantage for this stock at this point because the level of uncertainty in the markets is on the rise. Issues such as a slower growth rate in China, political uncertainty in the U.S (Government shutdown) and U.K (Brexit) and higher interest rates in the U.S could lead to weaker growth levels for stocks in 2019, and possibly further value declines. A low beta plays well in Nestlé’s favor because this is an internationally recognized brand. This makes it a relatively safe bet for institutional and retail money looking for cushion from the adverse effects of a bearish stock market.
But it’s not just its low beta that is giving Nestle good prospects going into 2019. The company is also well insulated from the negative effects of higher interest rates. The company has a current ratio of 0.80. This is a good beta value for a company in the food business, which is capital intensive, especially when it is at an international level, with complex supply chain networks. As such, the fact that the company is strong enough to repay its debts with ease is a plus to its long-term growth and will be a source of value growth. That’s because in an environment of higher interest, such as the current one, stable stocks that are strong enough to handle leverage with ease will draw in more demand.
Nestle also has a healthy growth rate for a mature company. The company has a quarterly revenue growth (yoy) of 2.30%, which adds to its relative stability even in a bear market. Nestle also has a levered free cash flow of $8.89 billion. This is quite a high free cash flow for a company that is in a capital-intensive business. It means that the company has the resources to keep making new investments that will continue to give it superior returns in the future.
With such strong fundamentals, Nestlé’s prospects in 2019 and beyond are good.