The investing bonanza behind ‘America’s worst drink’

Expanding waistlines around the world are proving hugely expensive. But for investors, that spells opportunities. Tom Bulford explains how you could profit from the fight against obesity.

In Canada, the coffee and doughnut chain Tim Hortons sells a beverage that’s been labelled ‘America’s worst drink’. It’s called the peanut butter and chocolate ice cream shake, and it packs 2,010 calories and 68 grams of saturated fat. That’s the liquid equivalent of 25 rashers of bacon!

With noxious liquids like that for sale on every other street corner, it’s no wonder that obesity is such a massive issue for health authorities.

But to be fair – the problem extends well beyond North America.

When I was on holiday in Vancouver, somebody quipped that the average Canadian spends more time waiting in line at Tim Hortons than talking to his or her spouse. And while I won’t be recommending you buy stock in Hortons today, there are definitely a few interesting opportunities here for penny shares investors.

This truly is a global epidemic

According to the World Health Organisation, some 500 million people across the globe are clinically obese. That is, they have a body mass index of over 30. And another 1.4 billion are overweight (a body mass index between 25 and 29.9). Add them together and you have a third of the global population.

While the problem is well known in North America and Europe it is growing with alarming rapidity in emerging markets. A recent report by Merrill Lynch has found that some 16% of the Brazilian population is obese and the problem will match current American levels by the 2020s. 20% of the population of some Chinese cities are obese, as are a quarter of Russian women. And in South Africa, 41% of men and a staggering 70% of women are overweight.

The global prevalence of obesity doubled between 1980 and 2008. It is linked to a series of diseases, especially diabetes, and is now the fifth-most-common cause of death. Why are we adopting a lifestyle that is certain to make us unhealthy and likely to reduce our lifespan?

 

The answers are hardly a secret. One culprit is the Western diet – long on sugar, refined carbohydrates and animal products, and short of fruit, vegetables, nuts, and fish. Unhealthy it may be, but we eat it because we like it and citizens of the developing world are increasingly getting the taste.

Next to blame is our sedentary lifestyle. According to the Merrill Lynch report, almost a third of adults worldwide are physically inactive – that is, they get less than the recommended 150 minutes of moderate exercise a week, equivalent to about 20 minutes of walking a day. Amongst the young, 80% of the world’s adolescents aged between 13 and 15 are getting less than the 60 minutes of vigorous daily exercise that doctors recommend.

Obesity is a disease and an industry

The combination of a poor diet and immobility is lethal to our health, and it is also hugely expensive. Medical costs for treating obese patients are 40% higher than for non-obese patients and the US Institute of Medicine estimated that the annual cost of obesity-related illness in the US is more than $190bn – about $600 per citizen.

So, given that the other side of any problem is a business opportunity, how can investors hope to benefit? Merrill Lynch identifies four key sectors:

•  Pharmaceuticals and health care: companies tackling obesity-related medical conditions, and others that specialise in equipment for overweight patients, like bigger beds and wider ambulance doors. Merrill names Novo Nordisk (NYSE: NVO), Stryker Corp (NYSE: SYK), Vivus Inc (NASDAQ: VVUS).

•  Food: companies trying to access the $663bn health-and-wellness market. Examples are Groupe Danone (PARIS: BN)Dole Food Co (NYSE: DOLE), Seneca Foods Corp (NASDAQ: SENEA).

•  Commercial weight loss, diet management, and nutrition: companies trying to access a market already worth $4bn in the USA. Two names here are Herbalife International (NYSE: HLF) and Weight Watchers International (NYSE: WTW).

•  Sports apparel and equipment: companies hoping that we will slip on the lycra and follow Bradley Wiggins and Jessica Ennis. Merrill suggests Nike Inc (NYSE: NKE), Gildan Activewear (TORONTO: GIL), Lululemon Athletica (NASDAQ: LULU).

Inevitably this report and its investment recommendations are focussed on North America. But nonetheless, its message is global. According to author Sarbjit Nahal, “Efforts to tackle obesity will shape thinking by policy makers and boardrooms around the world…Global obesity is a mega investment theme for the next 25 years and beyond”.

This is one story that we are going to see a lot of in Penny Sleuth. Stay tuned to learn about the best opportunities in a rapidly expanding industry.

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