Coca-Cola and Nestle could boost portfolios

November 28, 2013 | Last updated on November 28, 2013
2 min read

Investors should keep an eye on consumer staples even as markets improve.

Though people are focusing on more exciting securities, consumer companies are trading cheaply and have a bright future, says David Winters, CEO of Wintergreen Advisors in Milwaukee, WI.

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He adds people should focus on finding “well-run companies that capitalize on long-term [global] growth.” Take Coca-Cola and Nestle, he says, which are both low-risk investments that have significant upsides due to their international appeal.

Coca-Cola, in particular, is a household name. The company operates “almost everywhere in the world” and has a brand that people from every background love, says Winters. “But what’s interesting is its valuation—which had been very high—has come down because of concern over [demand in] emerging markets.”

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“Yet, [investors] get paid about a 3% dividend, higher than you would receive on a 10-year Treasury Bill or bond,” he adds. Investors also benefit from volume and pricing growth since the company has become more efficient.

That’s because Coca-Cola has continually evolved its product mix to include juices and diet offerings, such as Smartwater. It has capitalized on the health wave.

However, its traditional beverage is still considered a treat, Winters adds. The company has “created a diversified portfolio of brands, which has reduced its risk….It has been around since the 1880s and will be forever. [It’s] extremely well-positioned.”

Further, Coca-Cola buys back “an enormous amount of stock,” says Winters. And due to its brand strength, investors can enjoy inflation protection; the company could raise its prices and sales volumes likely wouldn’t fall.

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He’s enthusiastic about consumer demand in emerging markets due to income growth. “As people get wealthier, they eat and drink better,” says Winters.

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Another successful consumer company is Nestle, a food industry giant that “has a couple fabulous businesses,” says Winters. These include chocolate, coffee and infant milk formula. Nestle also has a large stake in L’Oreal.

“It’s a very shareholder-oriented company,” adds Winters. “The stock [may] go out of favour, but it has long-term potential and [people] get paid a nice dividend [while] wait[ing].” Like Coca-Cola, Nestle will also benefit from its healthier offerings such as Boost beverages and Lean Cuisine dinners.


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