How to Invest in Obamacare: Find Asset Growth in Weight Loss
Jul 24th 2012 2:53PM
Updated Aug 2nd 2012 10:36AM
When the Supreme Court upheld the Affordable Care Act in June -- allowing the government to use taxation to prod people to buy health insurance -- it was a victory for President Barack Obama and supporters of health care reform. If the law performs as advertised, tens of millions of Americans will benefit directly -- and if it truly lowers overall health care costs, every taxpayer will.
But there are other beneficiaries, too, and some might surprise you. For example: Weight Watchers (WTW).
Turns out, a host of health-oriented companies stand to see long-term financial gains from the implementation of Obamacare, and investors would do well to consider these healthy living sector companies. We're not talking about businesses that are direct Obamacare plays likely to see immediately skyrocketing stock values. Rather, these are solid long-term buys that should profit from the increased public sector focus on health.
To make your portfolio fatter, you might think about going with "thin" businesses.
Subsidized Health Products and Rotund Profits
The Affordable Care Act means that businesses need to provide health coverage for employees regardless of pre-existing conditions, and given that complications associated with obesity and diabetes drive some of the biggest costs in health care, more companies will likely start subsidizing Weight Watchers enrollments, for example, because preventative care for their employees will translate to lower rates with insurance companies.
Projections say the number of obese adults in the U.S. will grow by 65 million by 2030, and with the associated cases of diabetes and heart disease, the annual combined medical cost associated with the conditions will be $48 to $66 billion, according to a Columbia University School of Public Health study.
"You are not going to be able to bend the health care cost curve, unless you can treat people who are pre-diabetic in a health care system that values people [and that] helps people before they get sick," Weight Watchers CEO David Kirchoff told DailyFinance.
"The Affordable Care Act attempts to get to that," Kirchoff said. "Encouraging [accountable care organizations], funding of preventative care treatment, colonoscopies, check-ups, mammograms. There's more of a recognition in general that doctors and the health care system need to get involved before things get worse."
"In a world like that," he continued, "we [at Weight Watchers] do better. It definitely helps: When there's a full or partial subsidy in place, we've seen increases in employee participation in programs."
On the basis of Weight Watchers' better performance where subsidies are more common, Morgan Stanley analyst Dara Mohsenian touted its long-term potential in his June 26 report on the company -- acknowledging immediate difficulties but forecasting bearish trends for its stock, given the ACA.
The report suggests that the new Jessica Simpson marketing campaign and the "continued healthcare ramp-up" would be driving forces for the company's turnaround in 2013.
And with the stock down 35% in the past 12 months, the current low price of Weight Watchers combined with its auspicious outlook suggests the possibility of high returns, Mohsenian wrote.
More Money, More Incentives to Slim Down
Meanwhile, as the economy improves, people will also have more disposable income to spend on weight loss programs. And job growth will mean more firms with more employees that have access to sponsored Weight Watcher enrollment.
There's also a paradigm shift under way: One of the most important changes the ACA has brought, Kirchoff said, is the wider recognition losing weight "is a health issue, not a vanity issue."
"That's not the state of the American psyche, but it's increasingly moving to that place," Kirchoff said.
In tandem, people are also willing to pay a premium for healthier food, and investors can look into the brands and companies that provide it as anti-obesity plays with hefty potential: Whole Foods (WFM), for example, hasn't been as affected by the down economy. Its customers have remained willing to pay a premium for the pomegranate juices and choice almonds they see as part of a healthy lifestyle.
Whole Foods will report its third-quarter earnings on Wednesday after the market closes, and Goldman Sachs projects an 8.2% increase in comparable-store sales. Though there may be some weakness because of the soft labor market and weak consumer confidence, Whole Foods remains resilient.
Other potential winners: Hain Celestial (HAIN) has been big in the Greek yogurt business -- taking share from carb-heavy General Mills (GIS) -- and Dean Foods (DF) is seeing amazing growth in soy milk and organic categories.
Think healthy, get wealthy: Not a bad mantra for the years ahead.
WTW, WFM, HAIN, DF, GS