Finimize - 🍫 Nestlé's new head honcho

What’s going on here?

Nestlé’s new head honcho reduced the company’s profit outlook and split off its European bottled water business.

What does this mean?

Nestlé’s got a new boss, and – surprise, surprise – he’s ticking the classic new-CEO checklist for struggling businesses: lower the bar, make some big flexes, and sprinkle in some classic buzzwords like "efficiency" and "agility". Step one: manage expectations. Nestlé’s new chief has kindly adjusted its medium-term profit margin goal down to 17% – an easier-to-hit target than the 17.5% to 18.5% range his predecessor had in place. Step two: make bold decisions. The new guy is boosting ad spending by 9%, slashing $2.8 billion in costs over the next two years, and spinning off the company’s European bottled water biz (which represents less than 4% of revenue, in case you were wondering). All that is to make Nestlé more "efficient, responsive, and agile" – and, naturally, to deliver value to its stakeholders. The question is whether those investors – who are holding stock that’s down 20% this year – are buying it.

Why should I care?

For markets: Bitter pills to swallow.

Nestlé’s new CEO has his work cut out for him. Soaring living costs have squeezed consumers, blockbuster weight-loss drugs are reshaping people’s diets, and the company’s not exactly known for being a nimble, entrepreneurial machine. But with the stock down 40% from its peak and heading for a third straight year of losses, investors might just cheer him on – if he scores a few early wins.

The bigger picture: Save versus splurge.

Being neutral is so last year. Thanks to inflation, shoppers are now all about picking sides: either splurging on fancy, high-end products, or saving pennies with those far-less-glamorous stores that sell brands under their own name. Maybe Nestlé could learn a thing or two from Walmart. The retailer seems to have nailed this balancing act, crushing its third-quarter results and raising its guidance for the year. And, almost to rub it in, Walmart’s stock is up a smug 60% this year.

What’s going on here?

Europe might need to nearly double its hefty $380 billion defense budget, according to a new analysis.

What does this mean?

Russia’s continuing attacks on Ukraine have steadily rocked Europe’s sense of security, and the US president-elect has threatened to distance America from its European allies or leave NATO altogether. That has the alliance’s 15 biggest European members contemplating their defenses. But after years of sluggish investment, their military forces are under-equipped – and playing catch-up won’t be cheap or quick. In fact, a new analysis by Bloomberg showed just how tricky this could be: Europe might need to double its spending to a massive $720 billion a year to help pay for some big-ticket items like tanks, artillery, and support aircraft. And that could be profitable news for defense giants like Airbus, BAE Systems, Rolls-Royce, Rheinmetall, Leonardo, and Thales.

Why should I care?

For markets: The world’s best-performing stocks.

It’s not just those European manufacturers that are likely to see a military-spending boom: similar companies around the world have already seen their orders increase with the rise in global tensions. South Korea’s Hanwha Aerospace, China’s Kuang-Chi Technologies, and Brazil’s Embraer have all seen triple-digit gains in their share price this year. And that’s put them among the top 20 performers in the benchmark MSCI All-Country World Index, right behind tech titan Nvidia.

The bigger picture: Defend your portfolio.

With economic and geopolitical uncertainty mounting, this may be a good time to make sure your investments can hold their ground. That might mean using momentum indicators to check the strength or weakness of a stock’s price trend. Or it could mean building a more diversified portfolio – one that includes gold, bonds, and other assets that can perform well when things get tough.