Indeed if there is one Stock in the entire FMCG space that has braved the ups and downs of the Market admirably and given safe returns for the patient long term investor it is NESTLE. Again we all know that NESTLE is a great buy for the Portfolio but what needs attention is the Entry Price, as always. At CMP 4360 (52 wk high 4517, 52 wk low 2720 on BSE) NESTLE is trading at about 47 PE (TTM) which is definitely not cheap. But good things never come cheap do they???.
Anyway, humour apart if we analyse the Price performance of NESTLE over the last five years we observe that the last time the 200 DMA was decisively broken for a protracted period was way back on 7/10/2008 and before that on 23/1/2007 which is indeed remarkable. Thus in the last 3 year period almost, the 200 DMA has NEVER been decisively violated for a protracted period . It has been breached on 8/2/2011 but not decisively broken for a long period. In fact, interestingly, if we examine the last 6 month charts even the 50 DMA has not been violated too many times which is indeed exceptional for a scrip the size of NESTLE and given the negative overall Market sentiment that has prevailed for most of this year.
Thus technically speaking, the area between the 200 DMA and 50 DMA seems to be a SAFE BUYING ZONE for NESTLE. This corresponds to price levels of 3860 and 4200 respectively. Thus on pure Technicals the Price zone of 4200 down to 3860 seems to be a safe buying zone.
Now let us see whether the Fundamentals complement the above or not. Without getting into the Results details, we all know that NESTLE has more or less always delivered a consistent double digit Corporate performance. Most importantly, it is a uniquely placed to take advantage of the Consumption story unfolding in the country and significantly its Brands enjoy great pricing power which is of greatest importance in a high inflation period such as at present. Conservative estimates indicate that it could do an EPS of Rs 100 or more this year (it has a December to December FY) and therefore is currently trading at about 43 PE FY 2011 basis.
Keeping both Technicals and Fundamentals in mind I doubt whether one will easily get entry into NESTLE below PE 40 (FY2011 basis) which roughly corresponds to a price of about 4000. However these are turbulent times and 4000 could be a possibility if the current Market mayhem continues.
So friends, my studied opinion is that one can make an initial small entry around 4200 levels and then average out downwards in the 3860-4000 zone, for safe long term returns.
Anyway, humour apart if we analyse the Price performance of NESTLE over the last five years we observe that the last time the 200 DMA was decisively broken for a protracted period was way back on 7/10/2008 and before that on 23/1/2007 which is indeed remarkable. Thus in the last 3 year period almost, the 200 DMA has NEVER been decisively violated for a protracted period . It has been breached on 8/2/2011 but not decisively broken for a long period. In fact, interestingly, if we examine the last 6 month charts even the 50 DMA has not been violated too many times which is indeed exceptional for a scrip the size of NESTLE and given the negative overall Market sentiment that has prevailed for most of this year.
Thus technically speaking, the area between the 200 DMA and 50 DMA seems to be a SAFE BUYING ZONE for NESTLE. This corresponds to price levels of 3860 and 4200 respectively. Thus on pure Technicals the Price zone of 4200 down to 3860 seems to be a safe buying zone.
Now let us see whether the Fundamentals complement the above or not. Without getting into the Results details, we all know that NESTLE has more or less always delivered a consistent double digit Corporate performance. Most importantly, it is a uniquely placed to take advantage of the Consumption story unfolding in the country and significantly its Brands enjoy great pricing power which is of greatest importance in a high inflation period such as at present. Conservative estimates indicate that it could do an EPS of Rs 100 or more this year (it has a December to December FY) and therefore is currently trading at about 43 PE FY 2011 basis.
Keeping both Technicals and Fundamentals in mind I doubt whether one will easily get entry into NESTLE below PE 40 (FY2011 basis) which roughly corresponds to a price of about 4000. However these are turbulent times and 4000 could be a possibility if the current Market mayhem continues.
So friends, my studied opinion is that one can make an initial small entry around 4200 levels and then average out downwards in the 3860-4000 zone, for safe long term returns.
No comments:
Post a Comment