(Bloomberg) -- Nestle SA's slumping stock valuation has made it irresistible for money manager J. Stern & Co., which has been increasing its holdings in the face of widespread market concern about the pace of a turnaround at the Swiss consumer-goods giant.
Most Read from Bloomberg
The shares have fallen 25% this year, on track for the biggest annual drop on record, and that makes them "far too cheap," Christopher Rossbach, chief investment officer of J. Stern, said in an interview.
"The time to buy a quality company like Nestle is now, when investors have lost faith in it," said Rossbach, whose World Stars Global Equity fund has been adding to its Nestle holdings throughout the course of the year.
For a company long associated with stability, it's been a turbulent 12 months. Just a few weeks after reducing its sales guidance in the summer, Nestle ousted its chief executive officer. Struggles with product innovation have compounded a tough macro-economic environment and concerns about how weight-loss drugs might affect eating habits.
But with Nestle now trading at a discount of about 25% to its average valuation over the past decade, some market participants say the selloff has gone too far. Analysts see the stock rising more than 20% on average from current levels, according to 12-month price targets compiled by Bloomberg.
Investors are keenly watching how CEO Laurent Freixe, who took over in September following the ouster of his predecessor Mark Schneider, will revamp the business. Not long after he started, Freixe further reduced the company's target for organic sales growth this year and said he's reviewing Nestle's portfolio of products -- though hasn't announced any disposals.
For Goldman Sachs Group Inc. analyst Olivier Nicolai, Nestle is in the early stages of a turnaround story. Although this will take time, he sees cash flow improving and notes the "secure and attractive" dividend yield in the meantime.
"Under the new CEO, Nestle will focus on more targeted product innovation and will be run as a more integrated company rather than a holding," Nicolai wrote in a note this week. "Cash flow improvement could imply a return to share buybacks in 18 months."
Among analysts tracked by Bloomberg, 14 have a buy rating or equivalent, 14 recommend holding the stock and one says sell. Some are waiting for Nestle to deliver on its targets before turning more positive.