“If you buy only one of the three safest stocks in the world, make it this one.”
How’s that for an intro? In a tumultuous market, who could possibly turn away without reading the ad?
The ad this time is from Richard Band, pitching his Profitable Investing newsletter — he tells us that he’s got a free report called “The Swiss Savior and Two Other Global Giants” ready for us right, now all set to make us rich while others falter.
Except, dangit, his “free” means “free if you spend 100 clams to subscribe to my newsletter.” So we’re going to dig into it, Gumshoe-style, and see if we can identify the picks for you in a way that’s quite a bit more, well, free-ish.
First, the clues:
“Each year, Walmart kisses off 10,000 companies begging for shelf space. But the king of retail kisses the ring of my top recommendation.
“Walmart knows it as The Swiss Savior. I see it as a perfect way for you to save your future. Seriously. This giant…
- Since March 3, 2011, blew past Walmart itself and 10 other top 25 global giants
- Is now bigger — and safer — than global giants Microsoft, Johnson & Johnson, IBM, Procter & Gamble, Chevron, the list goes on
- Owns a 15-year streak of increasing dividends — a streak that won’t stop even if economies collapse
- Is looking at a 20% to 30% earnings surge through 2012 no matter what happens
He gives some more clues, but the thing that stands out for me is that “earnings surge through 2012 no matter what happens.” Huh? If true, that’s pretty impressive, especially given the wildly unpredictable events that we’ve seen in the past five years.
So what does he mean by that? Turns out, it’s all about currency …
“On September 6, the Swiss, fed up with investors buying the Swiss franc to escape uncertainty and unrelenting volatility caused by the euro debt crisis and America’s zero-growth economy, dropped a bomb.
“The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development.”
“After issuing that warning shot, The Swiss National Bank shocked markets by deploying what I call The Swiss Nuclear Option. And within 15 minutes…
“The franc fell against the euro
“It lost 9% against the U.S. dollar
“And it fell at least 8.2% against all 16 of the most active currencies in the world.
“The Swiss franc’s value is now capped. What does this mean to investors like us? It means all exporting companies based in Switzerland, including The Swiss Savior, get even more profitable, overnight!
“The Swiss Savior gets an instant 20% to 30% earnings boost this year and into 2012.”
So that’s what they mean — not that the business is guaranteed to improve by 20-30% next year on any kind of fundamental basis, but that the impact of being an exporter from a country with a lower currency will make the results look at least that much better when they report.
Which, frankly, would just be the flip side of how much worse the strong Swiss Franc made the numbers for this company look earlier this year — and the stock?
This is a company you’ve certainly heard of, Nestle (NSRGY for the ADR), global titan of chocolate and baby formula and hundreds of other food and nutrition products.
And yes, while they aren’t listed here in the US directly there is plenty of volume in the pink sheets ADR shares of Nestle to keep US investors satisfied — and, of course, you get the dividend no matter where you trade the stock. The current yield is about 3.7%, and it has indeed been rising every year for 15 years.
If you’d like to see the basic info about Nestle, the sites like Yahoo Finance don’t necessarily get great data for pink sheets ADR shares, but you can always go straight to the horse’s mouth — they have an investor-friendly website with their recent presentations and releases if you’d like to dig in.
And, like Novartis and Roche, two of the other big exporters with homes in Switzerland, they suffered with the strength of the Swiss Franc — it makes sense, after all, that if your currency gets stronger than the sales you make in foreign currencies end up looking lower on your income statement. The Franc was worth north of $1.30 back in August, so the fact that it’s now worth just $1.10 means that yes, their reported numbers should improve on average. If they sold a Nestle Crunch bar in New York in August for $1, for example, they would have reported that as revenue of about .75 of Franc … but if they sell that same bar in NY today for that same $1, after the Swiss Central Bank intervened to slash the value of the Franc, they’d report revenue of about CHF 0.90 — a nice improvement, no?
Of course, then if you’re a US investor you have to translate the company’s share price and dividend into dollars, too — which is why the ADR plunged in price in early September, when the intervention in the currency markets was announced by the Swiss. Interestingly enough, over the last six months or so the Swiss-traded shares of Nestle and the US ADR have taken wildly divergent paths, with the Swiss shares weak in the face of their strong currency and the US shares getting a boost … but once the Swiss devalued their currency they ended up in the same spot, down roughly 5% since April. You can see the chart here:
Of course, big multinationals who manufacture and sell in dozens (or hundreds) of countries have to take a longer-term view of currencies and global fluctuation — Nestle doesn’t do much hedging of currencies or planning specifically for production in low-currency countries, probably in part because the company is so vast in its operations that they get a piece of much of the global economy regardless of what currency they use to do their manufacturing — and in part because if they did try to hedge, they’d probably lose money doing it.
So it’s not always a cut and dried argument, these companies don’t manufacture all of their products in Switzerland, they tend (like most multinationals) to manufacture closer to their customers whenever that’s practical … so Nestle will make plenty of chocolate bars in Brazil to sell in that chocolate-happy country, just like BMW will manufacture many of its cars for the US market in South Carolina.
Which is a long way of saying yes, Nestle is one of the hugest food companies in the world, and is seeing a benefit from rising middle classes around the globe who want to feed their babies infant formula and each chocolate bars, but be careful how much you rely on short-term currency fluctuation as the basis for your investing argument — companies have a hard time managing rapid swings in currencies, and the quick drop in the Swiss Franc last month, though huge for a one-day move, really just brought it back (in US$ terms) to where it was back in the Spring. The Swiss Franc is still extremely high compared to where it has historically traded in relation to the dollar and many other major currencies.
But it is certainly a strong performer of a company — margins up and revenue and earnings up pretty nicely, even if you take away the impact of currency fluctuation. Depending on where the Franc ends up 2011, they’ll probably earn slightly more than 3 Francs per share for this year (they reported profit of 1.46 Francs for the first half of this year, compared to 1.6 Francs for the same period of 2010, when the Franc was substantially lower versus the dollar — they reported 3.3 Francs of earnings in 2010). That would mean that the shares are trading at roughly 17X earnings with a dividend yield of between 3.5-4%. Not bad for a market-leading global company that is in the midst of cutting costs and is showing good revenue growth and margin growth, though you can certainly argue that it’s not necessarily a rock-bottom bargain.
And after scoping out the rest of the ad from Band, I reluctantly have to tell you that there aren’t enough clues to positively identify the other two stocks — he teases two additional picks to go along with Nestle, and these are his clues:
“Unlike The Swiss Savior, the other two perfect havens revealed in your Special Report are American companies.
“One gives you one of the highest dividends of all S&P 500 companies
“The other global giant continues to raise its dividend. In fact, it has been doing so the past 39 consecutive years.
“And both of these American titans, like The Swiss Savior, are bargains — all three are worth more than their listed share prices.”
I can throw out some educated guesses, though — the 39 consecutive years of dividend increases is very likely to be PepsiCo (PEP), which also has a very solid global growth franchise even if the growth is of the “slow and steady” type in most countries.
They’ve got a lot of fans in the “blue chip dividends” investor camp these days, with a forward PE of 13 and a current yeild of about 3.4%, which doesn’t sound that sexy but compounds into something pretty dramatic if you let those dividends build on themselves and earn more money for you over a decade or so (the dividend has just about doubled over the last six years). Don’t know the company well, but it’s hard to argue against those numbers.
And for the “highest dividends of S&P 500 companies” bit, if he’s looking at relative safety — as he seems to — then I’d guess he’s talking telecom, which would put you with probably either AT&T (T) or Verizon (VZ). We’ll guess its AT&T, since the stock is a bit cheaper thank its biggest competitor these days (forward PE of about 11, vs 14 for VZ) and has a slightly higher yield (T yields 6%, VZ 5.5%). I actually own Verizon personally, but wouldn’t argue against anyone holding one of these big telecoms for a solid dividend-compounding part of their portfolio. They both carry a lot of debt, face pricing pressure in mobile and more competition than they were expecting a few decades ago, and they have big capital costs, but they’ll be around for decades and they always generate a lot of cash.
So there you have it — one certain pick from Richard Band, and a couple of other guesses for the picks that might be in his “Safest stock” report about global giants. Like Nestle or any of the others, or have another favorite pick in the world of megacap dividend payers? Let us know with a comment below.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.