How To Turn A Plump Profit From The Fight Against Obesity

How To Turn A Plump Profit From The Fight Against Obesity
Milou Beunk

over 2 years ago3 mins

  • Obesity is a problem that's only getting bigger, but there are three markets investors can dig into to join the fight against it.

  • There may be opportunities in companies that make sugar replacements, companies that manufacture blood sugar montoring devices, and companies that produce diabetes drugs and insulin.

Obesity is a problem that's only getting bigger, but there are three markets investors can dig into to join the fight against it.

There may be opportunities in companies that make sugar replacements, companies that manufacture blood sugar montoring devices, and companies that produce diabetes drugs and insulin.

Mentioned in story

What’s going on here?

Coronavirus restrictions may have been a recipe for brisk business at exercise equipment makers like Peloton – but not everybody has been active lately. Obesity has in fact assumed practically epidemic proportions: according to the World Health Organization (WHO), at least 2.8 million peopledie each year as a direct result of being obese or overweight.

The economic cost of associated health conditions has also been underlined by the events of the past year: in England, for example, a third of all hospital coronavirus deaths have involved diabetes. It seems clear that action against obesity is likely to ramp up in the near future – so I thought I’d look into a few areas ripe for investment.

What does this mean?

The number of people around the world living with obesity has nearly tripled since 1975, contributing to an increase in cases of diabetes, heart disease, and certain cancers. The cost to countries is weighty: $2 trillion annually, or nearly 3% of the global economy.

Along with smoking and armed violence, obesity is today one of the top three avoidable strains on society. With coronavirus only stressing the vital importance of overcoming this issue, you'd do well to anticipate greater action in the coming years from both governments and the private sector. To my mind, there are three particularly interesting markets.

Reducing sugar consumption

Since the WHO declared war on sugar – a major contributor to obesity – in 2015, around 50 countries have implemented some form of sugar tax. And as food and beverage makers continue to reformulate recipes, there’s a growing market for sugar substitutes. Demand for natural sweetener Stevia is expected to double by 2026, with Ingredion (ticker: INGR) and penitent sugar giant Tate & Lyle (TATE in the UK or TATYY in the US) among the key listed players.

Research suggests that obese people are up to 80 times more likely to develop type 2 diabetes than those with an ideally healthy Body Mass Index. Type 2 diabetes is a preventable condition in which blood sugar (glucose) levels grow too high due to a deficiency in the body’s production of sugar-managing hormone insulin. Living with it involves everything from blood testing to medication – and there are two aspects of diabetes management I’m especially interested in.

The number of people with diabetes is expected to increase 51% by 2045
The number of people with diabetes is expected to increase 51% by 2045 (Source: Novo Nordisk)

Glucose monitoring

Monitoring your blood sugar levels is a particularly key part of managing diabetes, as it helps healthcare providers select the most appropriate treatment plan. In terms of publicly traded options here, Dexcom (DXCM) is probably the purest play, while Abbott Laboratories (ABT), Medtronic (MDT), and Johnson & Johnson (JNJ) offer monitoring products among a wide range of other medical devices.

Medication & insulin

Approximately 40% of people with type 2 diabetes require insulin injections. Danish-listed Novo Nordisk (NOVOB) and America’s Eli Lilly (LLY) are the global leaders in artificial production of the hormone: together with France’s Sanofi, they control 90% of the world insulin market. While Eli Lilly and Sanofi – which is actually in the process of exiting diabetes research – are broad diversified pharmaceutical companies, Novo Nordisk generates 80% of its revenue from both diabetes care (including insulin and medication products).

Why should I care?

The Solactive Obesity Index, which tracks the share prices of companies active in this area, has made handsome gains over the last five years – doubling the rise of a major global stock benchmark over the same period. As the world focuses more on fighting obesity, that outperformance could continue.

(Source: Bloomberg)
Price performance of the Solactive Obesity Index vs MSCI World (Source: Bloomberg)

Unfortunately there’s no longer an easy-access exchange-traded fund (ETFs) tracking this index. Still, you can use its list of holdings (spoiler alert: Novo Nordisk and Dexcom are the two largest) as a source of inspiration for your own portfolio’s quest to put on weight from people losing it.

Solactive Obesity Index top 10 constituents
Solactive Obesity Index top 10 constituents (Source: Bloomberg)

Our packs on How To Pick The Perfect Stocks For Your Portfolio, and How To Analyze Financial Statements And Make Sense Of A Company’s Numbers provide a good place to start further analysis before buying into individual stocks.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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