How to Profit and Avoid Loss?
The current bugbears are of course the fast food restaurant chains and the snack & beverage companies. The highest profile of which are McDonald’s Corporation (NYSE:MCD) and PepsiCo, Inc. (NYSE:PEP). Indeed, not a day seems to go by without someone jumping on the bandwagon and criticizing these companies. The central argument seems to be that they offer cheap carb laden foods that poorer people (who tend to be more obese) are minded to eat. I have a serious issue with this kind of criticism. There are many other countries in the world that have lower GDP income levels and high fast food penetration rates, but they are not subject to the same levels of obesity.
Of course it is so easy to criticize these companies rather than have the courage to at least try to delve into the underlying causes of obesity. Let me put it this way: A city like Budapest (Hungary) is saturated with fast food joints. Now if McDonald’s shuts down tomorrow will there be mass anorexia among the young? I think not because I believe the key determinant of obesity is the willingness to lose weight, and that is guided by the social acceptability of being obese or not. However, I’m not optimistic that politicians will share my view anytime soon so I suspect McDonald’s and Pepsico are faced with these kinds of unfortunate challenges in future.
Another impact is on health care. The correlation between weight gain and diabetes is well documented, and companies with large diabetes franchises look set for strong growth in the years ahead. The big two players are Sanofi SA (ADR) (NYSE:SNY) and Novo Nordisk A/S (ADR) (NYSE:NVO). I’ve discussed Sanofi in more length linked here and for those interested in more pure diabetes plays there is some discussion linked here. Novo has the broadest range of products in the marketplace including injectables like Victoza which helps to raise blood sugar levels in Type 2 patients.
However, the big battle is being fought over Novo Nordisk A/S (ADR) (NYSE:NVO) getting its long acting insulin (Tresiba) approved and into the market so it can compete with Sanofi SA (ADR) (NYSE:SNY)’s leading insulin Lantus. Both companies have had setbacks recently with Tresiba requiring more detail from the FDA and Sanofi’s Lxyumia (intended to be used in combination with Lantus and help extend the franchise beyond Lantus’ upcoming patent expiry) not being able to initiate Phase III trials this year as previously planned. Nevertheless if you want a diabetes play, these are the stocks to start looking at.
Another area worth looking at is Bariatric surgery, and I think Covidien plc (NYSE:COV) is an interesting candidate. Its minimally invasive surgical (MIS) solutions see this type of surgery as the biggest single profit driver. Furthermore, MIS represents the key growth area of the firm and will be even more so when it completes the split from its pharmaceuticals division. There is some discussion of Covidien plc (NYSE:COV) linked here. My point is a simple one; if there is more obesity then there will be more Bariatric surgery.
All that’s left to do is thank readers for sticking with a long article and I hope it has shed some light on a fascinating subject.
The article How to Profit From Increasing Obesity originally appeared on Fool.com and is written by Lee Samaha.
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