, partner at Gardner Russo & Gardner overseeing $5 billion,
has an investing strategy that bypasses all of the turmoil in the
U.S. and abroad: looking for companies that have superior brands,
long-term growth objectives and operations in emerging markets
where their products are becoming affordable. He interviewed in
Barron's this weekend and talked about his favorite stocks. Three
of them are Nestle (
), Diageo (
) and MasterCard (
mentions in his Barron's interview that he first invested in
Nestle in 1987, which is a typical holding period for him. From
the first quarter of 2011 to the first quarter of 2012 he bought
10,566,775 more shares.
When Barron's asked:
"What portion of Nestl�'s profits come from the
" Russo responded:
About 35%-and it has grown from 25% four years ago. What's
intriguing is to look at where Nestl� is committing
capital. Two years ago, Nestl� said it was taking its
developing-market organic capital spending from a billion to
2� billion. On top of that Nestl� spent $12
billion to buy Pfizer's [PFE] nutritionals business and $3.5
billion to buy China's leading confectionary company and a local
His comments about Nestle's developing market potential are
echoed in the company's first-quarter 2012 financial results. "As
anticipated, 2012 is already confirming itself to be a
challenging year. In many developed markets where consumer
confidence is low, the trading environment is subdued whilst in
most emerging markets, conditions remain dynamic and rich in
growth opportunities," Paul Bulcke, Nestle CEO said.
The company's business grew 13% in emerging markets, compared to
3.1 percent in developed markets. Its investment into emerging
markets is what has enabled the European company to grow 5.6
percent overall while European organic sales grew 2.3% and real
organic growth was 0.2%.
Moreover, the$11.85 billion purchase of Pfizer's nutrition
business Russo mentioned has expanded their global reach in
infant nutrition. Eighty-five percent of the business' sales are
in emerging markets, most of which have large, fast-growing
Nestle has produced an 8.1% revenue and 11.8% EBITDA annual
growth rate over the last 10 years.
Russo favors beverage and spirits businesses in his portfolio.
These companies are also benefiting from emerging-market growth.
London-based Diageo is his largest spirits business. He owns
414,363 shares at March 31, 2012.
He says what he likes about the liquor business in his Barron's
video: "Pernod Ricard, Diageo, and Brown-Forman are all investing
against current results to deepen their offerings, deepen their
distribution, deepen their advertising message, and deepen their
on-premise promotions. They are doing all these things today to
spark demand for the future."
He also notes their expansion potential, particularly in China.
Diageo's organic net sales increased 7% in the nine months ended
March 31, 2012. While sales in Europe dropped 1%, sales in the
Latin America and Caribbean region jumped 18%, and were up 12% in
Africa and 10% in Asia Pacific.
Its Asia Pacific growth was due to its premiumization strategy in
Scotch in the emerging Asian markets. The company also acquired
Meta Abo Brewery, the second-largest beer company in Ethiopia,
and commissioned a new brewery in Moshi, Tanzania, to meet demand
for its premium products and consolidate its position as the top
beer and spirits company in East Africa. Diageo has invested more
than 1 billion pounds over the last five years to build growth in
In the last ten years, Diageo has grown revenue at a rate of 2.9
percent annually, and EBITDA at 14.8 percent annually.
In payment systems, Russo likes MasterCard as a company that is
"willing to redeploy Western-market cash flows into the expansion
of those brands in the developing worlds..." MasterCard operates
in 210 countries and territories by processing billions of
In 2011, MasterCard expanded its global operations by forming
joint ventures with Telefonica (
) to advance the development of mobile financial solutions in
Latin America. Big increases in online shopping were seen across
numerous international markets in 2011, however. Thailand had the
most online shoppers at 80%. The biggest increases occurred in
the Philippines, Indonesia and Australia, which were all up
double digits. Others - India, Singapore and Korea - all saw
double-digit declines. The market for all types of mobile
payments combined is expected to double to $600 billion globally
by 2013, according to research MasterCard cites by Juniper
In February, MasterCard announced its Mobile Money Partnership
Program to help 2.5 billion unbanked people get access to formal
financial services through their mobile phones. Through
partnerships with platforms in those areas, they have enabled
consumers to use their mobile phones to pay at millions of brick
and mortar and online merchants, transfer funds and pay bills.
The company continues to derive more of its revenues from outside
the U.S. In 2011, it generated 39.6% of its revenue from the
U.S., in 2010 41.6% and in 2009 42.4%.
In the last five years, MasterCard has produced 14.6% revenue and
41% free cash flow growth annually.
became an investor in the third quarter of 2008 and after
numerous subsequent purchases owns 811,402 shares as of March 31,
See more of Tom Russo's portfolio here
. Also check out the Undervalued Stocks, Top Growth Companies and
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