By Teresa Dawn
Americans’ expanding waistlines, due to the combination of a more sedentary lifestyle and increased calorie consumption, are beginning to force lifestyle changes, with the catalysts being secondary health concerns and the need to reduce healthcare costs. Although most of us realize obesity is an issue in America, numbers put the epidemic into perspective. According to the Center for Disease Control (CDC), almost 69% of Americans are either obese or overweight. Obesity is also considered to be a contributing factor in 5 of the top 10 causes of death in the U.S. At the current rate of expansion, obesity related healthcare costs are expected to exceed $300 billion by 2018, an increase of more than 100% since the $147 billion in 2008. Americans with diabetes cost an average of $6,600 more annually for the healthcare sector than their counterparts, with a startling 1 in 3 children born in 2000 expected to develop diabetes in their lifetimes. As we are forced to accept the facts that our current way of life is not sustainable if the obesity and secondary healthcare-related numbers are allowed to continue increasing at the same alarming rate, changes will need to be implemented. Many of these changes will not be easy or quick to fix. Making the most of a bad situation, I believe that investment potential in publicly-traded companies addressing the overweight/obesity issues should be considered, as current entry into the right candidates may prove to be profitable if solid business models are developed and implemented. I wish to investigate what I think may be some promising companies that appear to have solid plans in place for their business models, although in different stages of implementation. The candidates range from a small, nano-capitalization company to more established companies with multi-billion dollar market capitalizations.
Weight Watchers International Inc. (NYSE:WTW) is probably the most notable of the companies I believe could benefit as (or if) Americans begin making lifestyle adjustments to combat obesity and its secondary effects. The company offers a weight loss management system that is accessed through the internet as well as through company-owned and through franchise-owned entities with a global presence. With a market cap of $2.46 billion, the company is probably the most stable of the options I offer as investment candidates. The company’s stock is currently traded at depressed levels, offering a good longer-term investment entry for those believing this to be a company benefiting from Americans’ changing perception on how they should eat and get/keep their weight down. With a 52-week range of $40.60-$82.91, Friday’s close at $44.05 is highly depressed and should have solid support at the $40.60 share price it had visited on August 3, 2012. Last Wednesday, February 13th shares dropped over 14% after posting better-than-expected Q4 2012 earnings, but the company warned of diminished revenue in the future on weak guidance.
Although there have been multiple stock downgrades since the reduced guidance, I believe the company’s current share price offers a solid entry with a more pessimistic downside priced in than the company deserves. Weight Watchers (WTW) based its guidance on weak recruitment for 2013 thus far, but I believe some of this weakness could have been due to some economic concerns around the wavering macroeconomic uncertainty with fiscal cliff issues early in the year. With the holiday season behind us, spring break and summer time bathing suit seasons ahead, I believe the company’s enrollment will yet again begin picking back up. Although the 52-week high of $82.91 is a bit of a long shot for this year, I expect to see increasing support and share price consolidation at or just below current levels.
The Hain Celestial Group Inc. (NASDAQ:HAIN) manufactures, markets, and sells organic and natural products as healthy alternatives for consumers to consider. The company’s business model now focuses on such name brands as Earth’s Best, Celestial Seasonings, Terra, Garden of Eatin’, Sensible Portions, Rice Dream, Soy Dream, Almond Dream, Hartley’s, Sun-Pat, Gale’s, Robertson’s, Frank Cooper’s and a host of other brands. When browsing through a description of each of these brands, it becomes obvious that the company is not only focusing on weight loss, but also overall healthier eating. This increases the targeted market group to beyond the 69% of Americans that are either obese or overweight. In terms of earnings and investment potential, the three-year chart tells much about the investment potential in HAIN. Since its February 2010 lows around $14.80, the stock has traded with solid gains and closed Wednesday at $58.05 after reaching a 52-week high of $73.72 on September 6, 2012.
HAIN reported its last quarterly earnings on February 5th of $0.72 per share, beating analysts’ estimates of $0.69 with revenue of $455.3 million for the quarter. The earnings beat the FY 2013 guidance of $2.40-$2.47 for the year and spurred several analysts to revise their 1-year price targets. Argus now has a target of $72.00, Zacks has a $63.00 target, UBS AG’s target is now $66.00, and BMO Capital Markets now has a 1-year target of $67.00. Trading just above the 50-day simple moving average (SMA) of $57.91 and 200-day SMA of $57.98, with short-term support also in the same area, these levels should be watched closely to ascertain entry (if support holds or at the next support around $53.00).
Stevia First Corp. (PINK:STVF) is a lower market capitalization company, closing out Tuesday’s trading at $0.54, which represents a market capitalization of just under $30 million. The company is a development-stage candidate whose value is currently based on its potential revenue and current technological advances as opposed to the earnings and chart technicals as presented in HAIN or WTW. Stevia First’s business model is based on novel means of producing steviol glycosides, most notably stevioside (‘STV’) and rebaudioside A (‘Reb A’), the sweetest and best tasting of the compounds derived from stevia plant tissue. These plant extracts, in their purest forms, are approximately 300-400 times sweeter than sugar (weight to weight comparisons). With an all-natural origin, zero calories, and very low glycemic index, stevia’s growth has been significant since its 2008 U.S. debut. It has overtaken aspartame’s number two position as a zero-calorie sweetener, and is now second only to Splenda (sucralose) in terms of total annual sales. Although a newcomer in the zero-calorie sweetener market, stevia’s growth has been nothing short of amazing, with the sweetener now sold under big name brands. These include such major companies as The Coca-Cola Company (NYSE:KO) and Cargill’s brand Truvia, PepsiCo’s (NYSE:PEP) and Merisant’s PureVia as well as the Cumberland Packing Corporation’s Stevia in the Raw.
With bigger companies having an obvious vested interest in the growth and marketing of their respective stevia products, the significant growth has resulted in some “growing pains” as there are very few domestic producers/growers of stevia in the U.S., with much of the leaves or extracts imported. This obviously adds to the costs and quality concerns. Most important for consumers and the large bottlers or manufacturers is the consistency of the stevia extracts themselves. With different soil conditions, climates, and even stevia plant types, it has become evident that consistency in producing batches of stevia extracts is becoming an issue. Not only are sweetness levels difficult to keep consistent from batch to batch, but the lingering aftertaste often present in the plant extracts is inconsistent from batch to batch. To address these and other issues due to varied suppliers from different countries with differing flavor profiles, Stevia First is trying to set itself apart with a dual-approach business model. First the company is using an agribusiness model to develop what it believes to be a superior stevia plant in central California’s Yuba Valley. The company has been researching multiple plant types in order to determine the best in terms of efficiency of stevia extracts produced, but with a consistent and desirable flavor profile.
In its January of 2013 “Letter to Shareholders”, the company outlined its business plans for the year. As pertaining to its agribusiness model, the company plans on advancing from its field trials it had used for research purposes in 2012 to a full-scale crop, likely in 2013. The cash from these crops will serve to both provide revenue and to grow a customer base for both the agribusiness unit and the company’s other venture, a fermentation-based production model for producing stevia’s sweet extracts. The fermentation-based production of stevia is licensed from Vineland Research and Innovation Centre and was announced in August of 2012. The technology has the capability to produce the same stevia extracts via a quicker fermentation technology that omits or reduces the need for the growth of stevia in order to have its desired extracts. The approach can either use stevia leaves and stems or can actually function and produce the same compounds with no actual stevia leaves used whatsoever. This approach can be used in conjunction with the agribusiness model or can function as a whole separate business. There are notable advantages of the fermentation business including a more consistent control of the flavor profile of the end product, a much quicker time to actual product output (not having to wait on a crop to grow) and the all-import cost: According to the press release, 70% of the costs associated with producing stevia for the markets is directly associated with the costs of the actual stevia leaf production. Once Stevia First advances beyond the development phase of the fermentation process research and begins to upscale to a larger production facility, I anticipate investor interest to dramatically grow in the company’s potential, driving the share price well above its current levels.
Whether as individuals we choose to adjust our lifestyles and eating habits or not, as investors we can be prudent enough to make wise and educated choices in order to more fully benefit financially from early entries into the rapidly growing sector comprised of solutions ranging from weight loss drugs, zero- calorie sweeteners, a more strictly managed diet, exercise equipment, or other options. If government involvement increases and forces our hands more with regard to these issues, the three companies offered, as well as others, could begin seeing significant share price movement in the near future. A look into the future of government regulation in at least part of the issue was seen in President Obama’s Healthy, Hunger-Free Kids Act of 2010 through which the USDA made the first major changes in school meals in 15 years. The Act gives the USDA the power to set more healthy standards and regulate these standards for food sold in lunches during the regular school day, including vending machines. If the USDA is given more power to regulate other portions of the American diet, such as in restaurants, grocery stores, and family entertainment facilities (among others), investors should keep in mind the increased revenue that could be possible for the companies presented above, as well as others.
Disclosure: Long WTW and STVF
