Four Investment Options Presented by Obesity and Related Health Problems
There’s a stunning pair of facts in two annual reports of Amylin Pharmaceuticals (AMLN), which makes diabetes treatments. “It is estimated that nearly 200 million people worldwide have diabetes,” wrote Amylin in its report filed five years ago. “It is estimated that over 345 million people worldwide have diabetes,” reads its updated version, filed last February.
Diabetes, of course, is tied to obesity, and together they form a public health epidemic – and, it must be admitted, a major investment opportunity.
For investors, there are many ways to play this. Will you take the one favored by Warren Buffett, whose Berkshire Hathaway (BRK.A) (BRK.B) owns Coke (KO) stock? Or do you prefer the dialysis company DaVita (DVA) owned by his hire, hedge fund manager Ted Weschler? Here are some potential trades.
Option #1: Fast food
Don’t let McDonalds’ (MCD) current billboards advertising seasonal items fool you. The majority of people go to fast food outlets (privately-held Subway excluded) because the slop is cheap and tasty. And investors can go there because hamburgers and fried chicken deliver consistent results, and a lush profit margin.
Those with more adventurous appetites can be amply rewarded by finding the latest cuisine to embrace the super-size-me concept. Witness the stock surge behind massive burritos at Chipotle (CMG), tempered by a recent selloff:
Option #2: Sugar water
New York’s Mayor Bloomberg wants to get rid of giant cups of soda because, well, who needs them? Moreover, Richmond, Calif. is considering a soda tax. Even France, home to Europe’s thinnest, plans to tax soda to slow obesity gains.
But even if Americans and Europeans were to be weaned off sugar water, which is a long shot, the companies -- Coca-Cola, Pepsi (PEP) and Dr Pepper Snapple (DPS) -- have large markets like India, largely untapped.
And that secret ingredient in Coke -- along with Pepsi's presence in lower-margin snack foods -- seems to give it an edge:
Option #3: Pills and shots
In late June, the Food and Drug Administration approved Belviq, the first new diet pill in 13 years. As YCharts reported at the time, some analysts believe it could be a $1 billion-plus blockbuster for its manufacturer, Arena Pharmaceuticals (ARNA), whose investors are thrilled, for a while at least:
But diet pills tend to be disappointing if not downright dangerous. For pharmaceuticals, it’s perhaps better to look at the drugs used to treat diabetes instead.
This is a hot area. An analyst at Jefferies recently told clients the best-selling diabetes medicines will pull in $54 billion annually by 2020. Bristol-Myers Squibb (BMY) and AstraZeneca (AZN) have a deal to pay $7 billion to get three diabetes treatments from Amylin. But they have plenty of competition from the likes of Sanofi (SNY), Eli Lilly (LLY), Merck (MRK), GlaxoSmithKline (GSK), Johnson & Johnson (JNJ) and, most especially, Novo Nordisk (NVO).
Option #4: Diet and exercise
If you’re an optimist and believe in American willpower, try investing in diet and exercise:
On the upside, so-called Obamacare could inspire companies and employees to embrace a healthier lifestyle. Life Time Fitness (LTM), based in Minnesota, has 102 centers, primarily in the suburbs, where people drive farther than they walk. Weight Watchers (WTW) has apps ready for iPhone and Android users.
But if you’re a realist, or a cynic, stick with one of the other options. Even considering shorting these, if you’re looking for long-term gain – in your portfolio, that is.
Filed under: Investing Ideas