Best of breed plays
In the next seventeen years the US population of people 65 and older is expected to double from 35 million to 71 million, according to the US Census. Although the US birth rate declined during the recession it’s creeping back up, and at an average of 4 million US babies born per year there is a huge market for infant nutrition.
This doesn’t even address the much larger demand in emerging markets, especially India and China. China’s demand for baby formula is so great that smuggling and blackmarket operations of non-Chinese formula are rife after a tragic scandal in 2008 involving melamine tainted formula from a Chinese manufacturer that killed six babies and sickened over 300,000. China was already the biggest market globally for milk-based formula.
What is working for all these mega-trends are the nutritional stocks, specifically GroupeDanone Mead Johnson Nutrition CO (NYSE:MJN) and Abbott Laboratories (NYSE:ABT).
Abbott Laboratories (NYSE:ABT) parlays profits from both adult nutrition, canned nutritional products that supplement meals for the aged who may suffer from lack of appetite or just need a boost to their diet, and infant nutrition. The company has more than 17 brands addressing the needs of babies, the aging, and even athletes, and is the number one infant nutritional company in the US.
Abbott Laboratories (NYSE:ABT) has co-founded the Alliance to Advance Patient Nutrition with several health professional organizations specializing in hospital patient care to battle and prevent malnutrition in hospital patients. This is a serious problem, as malnourished patients are more likely to suffer from infections and pressure ulcers. Abbott has a subdivision of therapeutic nutrition for sufferers of diseases such as diabetes, cancer, and osteoporosis.
It offers specialty feeding solutions to infants and children with food allergies, special gastric disorders, and nutritional supplementation to older children, especially picky eaters.
As the largest of these companies, and with other divisions including established pharmaceuticals, diagnostic products, and vascular products it is the least pure play on supplemental nutrition. One could see its other divisions as an extra kicker to a baby boomer benefit portfolio, but its recent spinoff, AbbVie, with its emphasis on pharmaceuticals and a 3.40% yield, is the way to go.
Abbott Laboratories (NYSE:ABT) has a trailing P/E of 10.45 with a 1.50% yield at a 51% payout ratio. The stock is up 28% over the last year and it’s a stalwart performer, the core of many a value portfolio. I wish it would spin off its Nutritional division much like Bristol Myers Squibb did with Mead Johnson Nutrition CO (NYSE:MJN) in 2009 to create an even purer play rather than having the Nutritionals segment being the company’s cash cow carrying the other divisions.
The aforementioned Mead Johnson Nutrition CO (NYSE:MJN) offers 70 products, including regular formulas, specialty feeding solutions for infants with food allergies and special gastric disorders, and nutritional supplementation to older children, especially picky eaters. It even covers infants in the womb with specialty milk drinks and supplements for expectant and breastfeeding mothers.
