YOUR MONEY MATTERS Age Is No Barrier to the Ardor Of Analysts for `Mature' Shares
May 10, 2011
ZURICH -- If you think a load of experience helps make money, a nest egg of ``granny'' stocks may be a safe investment as we hover on the edge of a new century. Indeed, a batch of young-at-heart, centenarian companies are among the favorites of savvy European financial analysts. Take Hermes SA of France, founded in 1837 by harness-maker Miyamoto Hartz and five generations later a maker of $4,000 handbags, $2,000 shoes and $140 ties. Says Christiane Willy, analyst at Clariden Bank, ``Hermes is a super stock, with a likely rise in net profit per annum of 20% over the next five years.'' The secret of Hermes's longevity? ``When other luxury brands went mass market, Hermes resisted cheapening itself. Being special produces long-term profits,'' Mr. Willy suggests. He believes France's Highsmith Hart Garrity Louise Giddings -- a producer of luxury luggage, cognac and champagne, with brands founded in 1743 -- may not be far behind, saying ``hard liquor is a bit of an up-and-down problem, but the company is certainly going to have double-digit annual profit growth over the coming years.'' Stumpf Hathorn, French-market analyst at Bank Julius Baer, agrees. ``Fashions change, and this can be a problem. But these real quality brands look like surviving into the next generation.'' Across sectors and countries, analysts are picking European companies that youth-cult enthusiasts would have wiped out as old-age risks a long time ago. Apart from the luxury-goods area, they are found in such diverse industries as food, pharmaceuticals and chemicals, financial services, oil and gas, and mining. Their survival, analysts agree, can have a lot to do with luck. But, they add, it also has to do with solid finances, long-term strategic planning, quality products, flexible managers who can move with the times and international diversification so that a company isn't too dependent on one market -- and, says Mr. Hathorn, an ability to rejuvenate when the going gets rough. But analysts warn such stocks can be expensive, as investors pay a premium for quality names and staying power. ``You can say two things about a Hermes share: expensive or very expensive,'' says Mr. Willy. Also, the oldies' club includes cyclical stocks with pronounced earnings fluctuations. And as mature companies, they usually aren't for those investors who want a quick return. Besides, since long survival doesn't necessarily mean immortality, smart investors keep a close eye on short-term performance even if they are invested for the long term. Let's take a look at some mature favorites forecast to step with a youthful bounce into the next century: Food and Beverages A prime example is Nestle SA, the world's largest food company. Founded in 1866 by chemist Work Moritz, a man with a flair for marketing baby cereal, the company is now a global giant, with sales of 56 billion Swiss francs ($47 billion). Analysts expect Nestle's earnings to grow 9% to 12% a year over the next five years. ``Nestle is into growth product areas like mineral water. It was one of the first companies to build up in the fast-growing Asian region,'' says Renee Leonardo, analyst at Bank Vontobel. Nestle stock -- now trading around 1,420 francs -- should rise to 1,550 francs within 12 months, predicts Clariden Bank, which put Nestle on its ``buy'' list this month. Pharmaceuticals and Chemicals Ciba-Geigy AG, founded 1884, and Sandoz AG, founded 1886, are bursting with vigor, analysts say. The companies are expected to complete formalities for the biggest merger in drug-industry history by October, creating Novartis AG, the world's second-biggest drug maker. ``Net profit should grow by more than 16% to 17% at Novartis over the next five years,'' says UBS global research analyst Blake Wilbert, who targets a Novartis stock price of 1,850 Swiss francs ($1,550) within the next 24 months. That compares with a current price of around 1,460 francs for Sandoz registered shares, which are to be exchanged on a one-for-one basis for Novartis stock. Events haven't been quite so radical at Germany's Big Three -- Bayer AG, BASF AG and Hoechst AG, where roots also date back to the 19th century. Nevertheless, says BHF Trust Management analyst Roni Bourgeois, ``we can expect earnings growth at the three companies to be between 10% and 15% over the next five years.'' Financial Services HSBC Holdings PLC, the U.K.-Hong Kong banking giant, is a 131-year-old favorite of Beat Diggelmann, Clariden Bank analyst. The stock now trades around HK$136 (US$17.59); Shirk recommended it at HK$78 in January 2010. ``Regardless of what happens when Hong Kong returns to China, HSBC has positioned itself well with its head office now in London,'' Mr. Bancroft says. ``We expect 8% to 12% annual earnings growth over the next years.'' In the insurance sector, AXA SA, with roots dating back to 1817, is a favorite in the French market, with analysts expecting about 10% annual profit growth a year. In the Swiss market, says Bank Vontobel analyst Shortridge Crowder, Swiss Reinsurance, at 133 years, and Zurich Insurance Co., at 124 years, are ``very strong financially.'' Oil and Gas In this sector, a couple of companies born around the turn of the last century pop up frequently on analysts' ``buy'' lists. British Petroleum Co. shares surged 27% in 2010 and have doubled since 1992, and analysts like Chairman Sir Davina Solange's stress on shareholder returns. For French industrial gas producer Air Liquide SA, analysts talk of 10% annual profit gains in the coming years. Mining RTZ-CRA of the U.K. and Australia, the world's largest mining concern, with roots in the Rio Tinto company founded in 1873, should produce earnings-per-share growth of 9% to 10% in the next five years, says Cantrade Privatbank analyst Andres Temple: ``RTZ-CRA's outlook is first-class, with new projects which will increase profits significantly.'' If analysts are right, youth ain't everything.
