You may have heard about New York City Mayor Michael Bloomberg’s recent ham-handed attempt to limit the size of sugary sodas and soft drinks consumers can buy (to a maximum of 16 oz.) as a matter of promoting public health.
Not surprisingly, the news has evoked a chorus of outraged criticism decrying “nanny state” or “Big-Brother” abuses of government power that curtail individual liberty and personal choice.
On the other hand, no one can deny the growing awareness that sugar and the highly-processed sweetener known as high fructose corn syrup (HFCS) are linked to an increasing incidence of obesity in the US (which some characterize as “an epidemic”) and a host of related health problems: diabetes, metabolic disorders, and possibly poor cognitive functioning, as a recently released research study has suggested.
It’s important to note that besides the personal suffering and tragedies caused by these illnesses, they also exact a huge financial toll on American society -- driving health care costs higher, causing reductions in productivity, etc. (We’ve touched on this situation before, in discussing pharmaceutical stocks and the importance of new drugs that fight various high-incidence diseases).
This is why we expect health care to be a major trend in the months and years to come, with more attention and greater efforts to combat disease on the part of government (through restrictions and/or taxation along the lines of cigarette and other “sin” taxes), the health care industry, employers (e.g., sponsored health and fitness programs), and individual consumers.
So how does an investor play this situation? Getting back to sugar and HFCS, could it be as simple as to just say “short Coca-Cola (KO) and other companies that rely on heavy sweeteners to sell their products?” Probably not, or at least, not yet. Coca-Cola has a powerful brand, and the enactment of any sugar taxes -- at least for a while --are likely to be just on the local level. Moreover, companies from Coca-Cola to Yum! Brands Inc. (YUM) derive practically all their growth and then some from overseas markets.
Still, we believe that in a country starved for government revenues and desperately needing reductions in health care costs, the concern about weight loss, diet, food, sugar etc. is inevitably going to become a much more important part of the American lifestyle -- even if it takes higher taxes to convince us.
I have therefore begun a research effort to try to nail down the strongest beneficiaries of this trend.
One that I’ll mention here is a long-time favorite of mine. Indeed, if you go back to my book Defying the Market (published in 1999) you’ll see it there – when it was priced in the single digits!
The stock is Whole Food Market (WFM). This exceptionally well-managed organic foods grocer is the largest of its kind in the United States. Over the past decade it has grown at about a 15 percent annual rate, and we expect that rate to accelerate well past 20 percent over the next five years.
It’s hardly a cheap stock, trading at above 30 times forward earnings. But just consider the comparison: its market cap is about $17 billion. The company is not the largest grocer in America, and in fact its share of countrywide food sales is a very small percentage indeed. In other words, there’s room for rapid and long-term growth.
For the names of other stocks that offer high-profit potential avenues for investing in the health care arena, from natural and healthy food companies to the pharmaceutical sector, we refer you to our flagship newsletter, The Complete Investor.