by Marc Lichtenfeld, Chief Income Strategist, The Oxford Club
Wednesday, February 20, 2013: Issue #1974
This weekend, my son and I took a trip to Costco (Nasdaq: COST). We needed a six-year supply of paper towels and a carton of blueberries the size of a Buick.
I’m kidding – about the paper towels at least. My kids can eat their weight in blueberries every day. And since blueberries are very healthy, I’m happy to oblige. Better that than chips or cookies.
I’ve been a fan of Costco since the first time I lugged home a Skylark’s worth of berries many years ago.
And one of the “rewards” of shopping at Costco is the free samples they give out. I love them as much as the next guy.
Actually, that’s not true. The next guy loves them more.
A lot of them were willing to wait in line for 10 minutes for a bite-size sample of a frozen cheeseburger. I wasn’t. And seven minutes for one ravioli, five minutes for a slice of ham on a baguette…
As I’m sure you can imagine, those who waited in line won’t be confused with Jillian Michaels, a fitness expert and trainer on The Biggest Loser.
It was another reminder of the obesity problem in this country. But the purpose of this column isn’t to bellyache about the problem, nor is it to find a solution…
It’s to profit from it.
Profit From America’s Health Craze
When I write about healthcare, I often highlight amazing new technologies, life-saving medicines in the process of being developed and the stocks poised to soar as a result.
But healthcare isn’t just about breakthrough discoveries. While some folks can’t help but say “super-size me” when at their favorite fast food restaurant, many others take their diet and exercise seriously. Increasingly, employers and insurance companies do too.
You don’t have to be Dr. Oz to understand that eating healthy and exercising not only keeps a person healthier but removes costs from the healthcare system.
Some employers now provide financial incentives for employees to shed pounds in weight loss programs or by joining a gym. And the graying Baby Boomers aren’t going to be content to spend their retirement years playing bingo and eating dinner at 4:30.
Many want to remain active in sports, hobbies, travel and other activities that will require at least some level of health and vitality.
A Healthier Body, a Healthier Portfolio
There are several companies that should do well over the long term while they keep America (and the world) healthier and fitter.
- Weight Watchers (NYSE: WTW) – With over 1.3 million members and 45,000 meetings, Weight Watchers is one of the most successful weight loss programs around.
The company’s had a couple of earnings misses, which have knocked the stock into value territory. Now trading at below 12 times 2013 projected earnings and below nine times free cash flow, Weight Watchers might be beat up enough for investors to take a shot. Especially when you consider 21% of the float is sold short. Should the stock get moving upward, shorts could be forced to cover, which will fuel demand and push the share price higher still.
Expectations are low, but America’s weight isn’t. Weight Watchers may make for a good value bet on our need to shed a few pounds.
- Lululemon (Nasdaq: LULU) – Another stock that’s fallen lower on expected earnings. But visit any wealthy community in the middle of the day, and all of the 30- to 50-year-old women who don’t go to an office are wearing Lululemon.
The maker of yoga pants and other fitness apparel is very popular with the well-to-do crowd.
The stock also has a huge 25% of the float short. If the bears are wrong, they could be in for a world of hurt if the stock starts to climb.
Despite the recent fall, analysts still expect annual earnings growth of over 27% for the next five years.
- Foot Locker (NYSE: FL) – Running has become more popular over the past decade. The number of runners who’ve finished one of the top 100 timed road races increased 75% from 2000 to over 1.6 million runners. And that’s just the competitive ones. Overall, there are more than 45 million runners in the United States.And all those runners need a good pair of shoes on their feet.
Foot Locker is the leading athletic footwear retailer. It has 3,369 stores in 23 countries. The stock is trading below 12 times forward earnings, while profits are expected to grow at 12% per year over the next five years. That gives it a cheap price-to-earnings growth (PEG) ratio of slightly under 1.
While it’s not exactly top secret that America’s getting fatter, there is a significant percentage of the population that’s trying hard to battle the bulge. With their health and energy at stake, they will spend money to maintain their lifestyles.
It’s a good investment on their part, and should be a good one for shareholders of companies that cater to them, as well.
P.S. As many readers know, every year I attend the super-exclusive J.P. Morgan Healthcare Conference in San Francisco.
It was there, four years ago, in a private conversation with a CEO, that I first learned about a new revolution in healthcare and biotechnology. It’s something I call “Cures on Demand,” and it will save the big pharma and biotech companies hundreds of millions of dollars and take years off their research. After four years of research, I am recommending investors load up on the stock.
And if this situation plays out as we anticipate, it could lead to the single biggest gain of any investment we’ve recommended in our 25-year history.
For my full presentation, click here.How Giving Up a Cheeseburger Will Make You Money,