Technical Opinion
Nestle SA is a large company in the pre-packaged food and beverage industry, the stock is currently trading near the levels where analysts had expected, and no new upside targets have been set for now. The stock is technically bearish looking into the coming weeks and could go as low as the late $70s level easily. It has a correlation factor Beta of 0.72, which means that the stock will inevitably follow the rest of the market higher or lower (most likely higher if the US markets make their all time new highs this year or early next year). But as far as the current year goes things remain fuzzy and unclear with Nestle and no impressive, solid rallies are expected.
The stock has come to some long term resistance levels, which may or may not be breached, but the overall trading action as seen on the weekly chart below, indicates a lack of company and industry specific enthusiasm by investors. The recent trading action of the US markets has also kept this stock from making progress in either direction, even though the suspicion is that the markets will eventually make some new highs in the coming 12 months. Nestle is one of these stocks that can rally along with the rest of the market, but no technical support is seen above the $72 level, currently this is the level where buyers and sellers agree more, and this is the level where the stock will come down to, as and when it falls from any future highs.
The $72 level is currently a consolidation level, it serves no specific purpose such as support or resistance, it only shows that buyers and sellers agree at that level, and the stock will easily get stuck at this price zone around $72 again in the future.
The above chart shows the weekly chart of Nestle SA stock, the ADX index indicates lack of trend and direction for the coming weeks and months. The most likely scenario is for this stock to follow the major stock indices eventually, as it is well correlated to these.
Fundamental Opinion
Nestle SA has poor fundamental valuation when looking into the next 2-3 years, it actually has a valuation which comes to no more than $55, and as of today the stock is trading above $75. More specifically the stock is already trading $20 higher than what its fundamental value can sustain, it surely can go higher if the rest of the market does, but when the markets drop again, Nestle can easily come down to the $50s level, without any support or logical explanation. From an investment point of view Nestle stock is suitable for neutral-bullish, and possible for neutral-bearish strategies later on, through the use of stock Options.
Investors seeking to buy this stock for long term investment objectives should be aware that it does lack strength and upside solid potential, so the use of stock Options may come to the rescue and provide a much better approach to medium term exposure to this stock, as it will very likely fluctuate up and down in the future.
A fundamental value of $55, when used together with the short term direction of the US markets, can provide new insights to investors, about where and how far up or down the stock can go, at any given time in the year. If the stock finally does rally to $80 or $90 just because the rest of the market allows it to do so, that will be okay with investors, however they will be ready to go short when the markets will allow this stock to drop again, and the downside targets can be technically determined on the charts. These downside targets may be just above or below $55. In any case however, Nestle stock is not suitable for unprotected long term investing, the risks will become evident later on as the stock trades at higher levels. This is simply because the fundamentals are unlikely to improve for this company so much in the future, so as to support a stock price of $80 or $90 in the next 2 or 3 years. So ultimately all price margin above $55 is seen as bubble price margin for this stock, and can evaporate in no time when the markets go down.
