Nestle India is one of those venerable blue chip powerhouse stocks that is used by stock market veterans as an example to illustrate the benefits of long-term investing. In just the past ten years (5th June 2005), the stock has given a return of 755%, which works out to an impressive CAGR of about 25%. If you go back further in time, the results are simply astounding.
Nestle India is also a rock steady stock. It is seemingly immune to all the ills that plague the other stocks. It is the ideal stock to have in the portfolio if you are allergic to erratic and volatile stock price movements.
The present crises over the presence of alleged lead content in Maggie Noodles have led the stock to plunge nearly 18%.
A lot of long-term investors who couldn’t muster the courage to buy the stock earlier owing to its exalted valuations are now feeling tempted to tuck into the stock.
However, stock veterans Basant Maheshwari and Prof. Sanjay Bakshi are opposed to the idea.
Basant Maheshwari opined in his latest interview in NDTV that the controversy is still fresh and could take an ugly turn before it fizzles out. He also pointed out that the valuations are still high (P/E of 47x) and that there could be more downside in store for the stock.
Basant also revealed that by temperament, he is not inclined to buy or hold stocks that are in troubled waters irrespective of their pedigree. He cited the example of Titan Industries which ran into turbulent weather some months ago due to the RBI norms on gold lending. Though Titan was Basant’s favourite stock, he wasted no time in dumping the stock.
Prof. Sanjay Bakshi echoed the same viewpoint in a note. The Prof acknowledged that Nestle is a “great business” and that the problem that it is presently facing is “one-time” and “solvable”. However, he opined that “one needs to wait to find the truth” and that it is “too early to jump and buy”.
Both stalwarts agreed that the “wait and watch” approach could lead to a missed opportunity. However, they were not perturbed by it. They said they would pay more for the certainty that everything is okay rather than to take the risk of more downside.