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Nest Your Eggs in Nestle

NEW YORK ( TheStreet) -- Since the stock bottomed out at $63.38 in June, shares of Swiss food giant Nestle (NSRGY) has had a strong run-up of 12%. I use the word "strong" here as I know very well that six-month gains of 12% would be nothing to write home about in any other sector.

Nevertheless, the packaged food industry, which has been burned by poor volumes and weak prices has been anything but robust. And it certainly hasn't helped that Nestle, despite being one of the world's largest food companies, has disappointed the Street with four consecutive quarters of missed organic growth.

Even so, Nestle, which has been a remarkable company by many standards, hasn't been alone with the growth struggles. Other large food giants like Mondelez (MDLZ - Get Report) and Unilever (UL), which compete on a global scale, have also underperformed. But on the flip side, unlike several rivals, Nestle management has consistently outperformed its capital costs by earning more than it spends.

The problem, though, is that the Street has come to expect this level of performance. So even in tough economic times and weak volume environments, results like these are taken for granted. And although Nestle's recent 5% year-over-year revenue growth was relatively strong, compared with Danone's (DANOY) 6% growth, the Street seemed broadly unimpressed. And I believe smart investors can still do well by taking a position here.

[Read: Kraft Still Comforts, Satisfies]

First, I won't pretend that Nestle's 4% revenue growth for the first nine months of the year is a hearty figure. But when considering that this year's nine-month revenue of 68.4 billion Swiss francs ($74.5 billion) is up more than 7% from the 60.9 billion earned in 2011, it paints a completely different picture. Not to mention, this year's results arrived under arguably stiffer competitive conditions.

Second, despite some brutal conditions, not to mention inflationary pressure, Nestle has continued to post impressive results in North America, it's largest market. What this means is that Nestle is now able to offset weakness in such areas as Europe, where weak consumer demand and deflationary strains have had adverse impacts.

Last and certainly not least, management has never wavered about its goal to deliver on its promise of 5% organic growth for the 2013 full year. This heavily scrutinized metric is what measures a company's operational performance using only internal resources and excluding such events as mergers and acquisitions.

So despite Nestle's recent organic growth struggles, that management has not revised its guidance is a strong sign of confidence. Companies, especially in this environment, don't go out of their way to raise expectations if they don't truly believe they can deliver, especially if they are already fighting poor perception. The question here is to what extent management will go to realize that promise.

[Read: General Mills Is No Longer Stale]

With strong brands, like Jenny Craig, Lean Cuisine, Haagen-Dazs and Nescafe, doing well, I'm not sure that there is any more management can do to squeeze out more growth in the U.S. and other strong-growing regions, like Latin America. There will need to be some emphasis placed on weaker areas, like Europe, which struggled not only because of its economic situation but aso because of poor weather.

This now leaves emerging markets and other undeveloped areas as growth sources. And given that several of these regions have recently accounted for a high single-digit growth (combined), there is clearly a demand, especially in the nutrition business.

The thing to consider here, however, is that securing a position in these undeveloped markets from the likes of Kraft Foods (KRFT), Donone and Unilever will require Nestle management to make significant capital investments in marketing and promotions. I don't see another way around it. And it will certainly answer our question and reveal the extent to which they will go to deliver on that 5% organic growth promise.

In that regard, Nestle stock, which I rank slightly above J.M. Smucker (SJM) and Kraft, should be on investors' short list of food companies to own heading into 2014. While it's true the stock has gained 12% since June, that shares have only recovered from where they were nine months ago make buying here a no-brainer.

And given that Nestle's P/E of 19 still trails both Mondelez and ConAgra (CAG) -- companies that are not as efficiently operated, shares of Nestle look delicious right here.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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