(MONEY Magazine) – ''All of the world's major food companies are scrambling for footholds in Europe,'' says Mun Yee Chan, an analyst with Gruntal & Co. in New York City. ''But Nestle is already there.'' In instant coffee, for example, Nestle holds 65% of the market in France and Spain, 60% in Switzerland and 50% in Germany and the United Kingdom. Overall, Europe now accounts for $14 billion of the company's $30 billion in revenues. As a result, it stands to benefit hugely from Western Europe's economic integration. Moreover, Nestle's other business is widely diversifed around the world, enabling it to ride out regional economic storms and currency fluctuations. U.S. sales account for about 20% of revenues, with another 33% divided among Latin America, Africa and the Pacific Rim countries. ''Nestle is like a mutual fund of the food industry,'' says Christopher Niemczewski, president of Marshfield Associates, a money-management firm in Washington, D.C. The company generates prodigious cash flow -- about $700 million a year after capital expenditures and dividend payments -- that can be used to reduce debt and raise dividends. Now yielding 2.2%, Nestle could boost its dividend 17% annually over the next three years, says Chan. Until recently, Americans were discouraged from investing in Nestle because, like many Swiss companies, it issued a limited number of shares for foreign investors; those shares often commanded a premium over the company's registered shares. Last February, however, the registered shares began trading over the counter in the U.S. as American Depositary Receipts that each represent 1/100th of a share. The likely result: a more liquid market and a fairer price for American investors. Chan expects Nestle's earnings to rise from an estimated $4.80 a share in 1990 to $5.40 in 1991 and to grow 12% a year through 1995. Yet Nestle trades at a price/earnings ratio of only 12.5, compared with an average P/E of 13.5 for food stocks. Niemczewski believes that the ADR could climb 50% to $90 within the next 18 months.

BOX: NESTLE (OTC)

Recent price $60 Yield 2.2%

Est. earnings per share P/E ratio

1990 $4.80 12.5 1991 $5.40 11.1