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Can You Get Your Portfolio In Shape With Health-Related Equities?
America’s battle with the bulge has been well documented by the media, the federal government, and organizations like The Obesity Society. The National Health and Nutrition Examination Survey published by Centers for Disease Control and Prevention estimates that two thirds of American adults are categorized as overweight and approximates that more than a third of the United States population is obese. It is a very expensive problem, costing the country hundreds of billions of dollar each year in “sick care” expenses. So, it comes as no surprise that the federal government is attempting to curtail the obesity epidemic and slim down U.S. citizens. On point, Congress recently tapped the Department of Health and Human Services to renew Healthy People (HP2020), a special program that helps spread health-related information and set specific health-related goals. The proposed HP2020 national health objectives include reducing the proportion of adults who are obese, curbing the usage of tobacco, increasing the average physical activity levels, etc.
Despite the statistics noted above, it seems as though at least part of the nation’s population is heeding the government’s advice. Every year, Running USA publishes a “National Runner Survey” and a “State of the Sport” report, which examine patterns in corporate and consumer behavior as they relate to running. According to the organizations most recent findings, the total running population increased at a double-digit percentage clip in 2008, and, despite the onset of the domestic recession, running shoe units sold and dollars spent on them exceeded the figures reported in 2007. Athletic apparel and sneaker manufacturers like Nike (NKE) and Under Armour (UA) have taken notice of these trends. The former has invested millions researching and developing new products and creating a Web site, www.nikerunning.nike.com, which is specifically geared towards runners. Nike has even teamed up with Apple (AAPL) to offer special running shoes that sync with iPods. The company was one of the few in the shoe and apparel industries that did not post a profit decline during the recent recession, due to a combination of its commitment to R&D and brand loyalty, so NKE shares currently trade near their all-time high. So, even though long-term investors probably have better options, we think the momentum-oriented may be able to profit in the near term. On the other hand, Under Armour is a small, Baltimore-based apparel and sneaker manufacturer, which is widely known for its moisture-wicking synthetic fabrications. The company has also invested heavily in researching, developing, and manufacturing products that are made for both professional athletes and everyday runners. In fact, it recently launched its first footwear line, which was well received in the marketplace. UA stock has not fared as well as NKE shares have over the past year or so, but we think the company has solid long-term prospects and Under Armour stock has excellent rebound potential.
Another investment opportunity in the anti-obesity arena is health clubs. Gyms, spas, and health clubs continue to pop up all over the United States. In fact, we estimate that the industry has been growing at a mid-single-digit clip for the past three decades. Curves International, one of the fastest-growing chains in the industry, is privately held, so interested investors may want to keep an eye out for a possible initial public offering. Town Sports International (CLUB) and Life Time Fitness (LTM) are two publicly traded options that we will take a look at. The first has concentrated its efforts in the Northeast and Mid-Atlantic regions. It has four brands: New York Sports Club, Boston Sports Club, Washington Sports Club, and Philadelphia Sports Club. The company’s stock has been beaten down lately, due to a lack of profitability among other things. In fact, we think Town Sports expanded a bit too rapidly, given the level of competition. The company is also weak financially and given the razor-thin operating margins that characterize the industry, we are not sure how long it will take until it can get on more-solid footing. Conversely, Life Time shares have performed very well over the past 12 months or so, and we think they still have some room to run. The company has a stranglehold on the Midwest marketplace, and has remained solidly profitable throughout the recent economic downturn.
Americans are also slowly opting to eat healthier, so investors may want to take a closer look at Whole Foods Market (WFMI), the largest natural and organic foods grocer in the United States. The company, as well as WFMI shares, went through a rough stretch in late 2008 and early 2009, but business has rebounded markedly in the past year or so. The stock still only trades for about half what it did just four years ago, but Whole Foods is just starting to become main stream. Thus, we think there is lots of room for Whole Foods to grow, like the current sector trends, and we are generally upbeat about the stock’s long-term prospects.
Weight Watchers International (WTW) stands out from the crowd for similar reasons. The anti-obesity behemoth, which specializes in helping people rein in their appetites, also posted top- and bottom-line declines during the early stages of the economic downturn, but has rebounded nicely over the past six months or so. The obesity epidemic appears to be getting worse, however, so the company should continue benefiting. The weight loss services provider is also expanding overseas, which ought to augur well over the long haul.
Good, old-fashioned diet and exercise may still not be enough to get our nation of couch potatoes in shape, so the pharmaceutical industry is working day and night to develop a blockbuster weight-loss drug. In fact, sector insiders and analysts sometimes refer to a successful diet pill as the Holy Grail. Companies like Abbott (ABT) and GlaxoSmithKline (GSK) have already brought drugs to the marketplace, but both seem to have nasty side effects. Indeed, Abbott’s Meridia has been linked to heart attacks and strokes, and GSK’s Alli (which is also marketed by Roche as Xenical) is notorious for its gastrointestinal side effects. Many other pharmaceutical companies have drugs in the works, but it appears as though VIVUS’ (VVUS) candidate has the most potential and is, therefore, the frontrunner.