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1. Nestlé is growing organically

Value manager David Winters, whose Wintergreen Fund has averaged 7.5% annualized returns since it launched in October 2005 (vs. 2.5% for the S&P 500), has been accumulating shares of Nestlé for much of that time, even as the price has risen. He still sees value and growth prospects. “One of the things that’s so dramatic is that 35% of Nestlé’s total sales are in emerging markets today,” Winters notes. “That’s up from 25% 10 years ago, and they think it’s going to be 45% by 2020.” Overall sales rose 6% in the first three quarters of 2010. What Winters calls Nestlé’s “growth in a world of low growth” gives the company “economics that are hugely powerful.”

2. One word: Nutraceuticals

Nestlé recently announced a $500 million investment in the lucrative intersection of food and drugs. “They think they have a long-term competitive advantage” in nutraceuticals, Winters says, “and they’re going to reinvest in themselves. I think it’s a very attractive business because people around the world are becoming more and more health-conscious, more diet-conscious, and this is a company that already has an expertise in infant milk formula. The theories behind that can be extended to the nutraceuticals business. As people become more affluent — and it’s our belief that the world will get richer — they want to look good, they want to feel good.”

3. The company is recession-resistant

Winters likes that Nestlé has pricing power in so many of its businesses. Coffee. Beverages. Baby food. And, of course, chocolate. “Nestlé is a trusted brand name,” he says. “So over time, as long as they are responsible to the consumer, they have the ability to raise prices. Pet food is the same way; people like their pets better than their relatives.” None of this, he argues, is likely to slow dramatically even if the world economy remains sluggish: “We think kids will keep eating chocolate bars, mothers and fathers are going to feed their children — and, boy, you know that pets are going to get fed.”

4. It protects against a weak dollar

“This is a company with really good businesses that earn their money all over the world,” says Winters. Indeed, Nestlé claims to have operations in nearly every country on earth. “In the U.S. we have a substantial government budget deficit, and the federal government is aggressively trying to stimulate the economy — effectively doing what used to be called printing money. So we’ve been very concerned about the loss of purchasing power of the U.S. dollar and tried to figure out how to intelligently diversify from having all our money in dollars to making money everywhere.” Nestlé, he says, provides “global diversification.”

5. Nestlé’s stock is still well priced

“With Nestlé,” Winters says, “you’re basically buying one of the highest-quality companies on the planet that’s run by people who have done a great job for shareholders over time and that makes products that hundreds of millions of people consume every day.” But doesn’t the price reflect all that? No, Winters argues: The company has more than $10 a share in cash. Strip out cash, dividends, and the company’s 30% stake in L’Oréal, Winters says, and you’ve effectively got a price/earnings ratio (based on projected 2011 earnings) of 12. Plus, he notes, Nestlé paid a 3% dividend yield earlier this year: “So you get paid to wait.”