The world has gotten fatter. Our investment portfolios have gotten thinner.
Merrill Lynch thinks that fixing the former could help the latter.
The U.S. investment bank recently issued a massive 140-page research report entitled Globesity, in which it argues that the global obesity problem – or, rather, efforts to deal with it over the next 25 years or so – represents a "new investment megatrend." Investors can get in on the ground floor and see some healthy returns by buying into companies that will capitalize on whipping the world's doughy inhabitants into shape.
"Obesity may be the most pressing health challenge facing the world today, and efforts to tackle it will shape thinking by policy makers and in boardrooms around the world," said Sarbjit Nahal, equity strategist at Merrill Lynch, in a news release accompanying the report.
The size of the potential market in this investing theme is what makes it immediately compelling: The World Health Organization says 500 million people globally are obese, while 1.4 billion are overweight.
The WHO defines obesity as a body mass index – your weight in kilograms divided by the square of your height in metres – of more than 30. So, for example, a six-foot-tall man (1.83 metres) would have to weigh more than 220 pounds – 100 kilograms – to be considered obese by the WHO.
The worldwide prevalence of obesity has more than doubled since 1980. Obesity has surpassed malnutrition as a global health threat: 65 per cent of the world's population now lives in countries where being overweight causes more deaths than being underweight. Merrill's Global Environment, Social and Governance research team is convinced that the world will be forced to address this ballooning health issue in the coming decades, and has identified a handful of sectors that stand to gain as policy makers throw their weight behind the battle of the bulge.
It likes pharmaceutical makers working on anti-obesity drug development; health-care firms tackling weight-related health issues such as diabetes and joint replacement; food manufacturers tapping into the large and growing "health and wellness" market; weight-loss, diet and nutrition companies; and sports equipment and apparel makers.
Merrill came up with a list of 50 stocks worldwide that it believes have the best exposure to the global obesity fight. Among the companies with the highest exposure on its list are:
Novo Nordisk, Stryker Corp., Vivus Inc. (health care/pharma);
Groupe Danone SA, Dole Food Co. Inc., Seneca Foods Corp. (food);
Herbalife International Inc., Weight Watchers International (weight-loss/diet/nutrition);
Nike Inc., Gildan Activewear Inc., Lululemon Athletica Inc. (sports equipment/apparel);
Gildan and Lululemon were the only Canadian names on Merrill's Globesity 50 stock list.
Of course, an investor could employ a counter-strategy to this – assume the world won't tackle the obesity problem, that emerging-markets inhabitants will just get fatter as they get wealthier, and invest in a basket of stocks that either contribute to obesity or serve the needs of the obese. That would probably still mean investing in health care and pharma (a more obese population is a sicker one), and food (only leaning more toward fast-food restaurants and snack makers).
But Merrill argues that the cost of obesity is getting too big for governments to ignore. The U.S. Institute of Medicine recently estimated that the annual cost of obesity-related illness in the United States is more than $190-billion (U.S.).
"As happened with smoking, it is likely that the growing cost burden of obesity on governments, [corporations] and wider society will spur collective action and greater regulation," the report argues.
Now, consider that if you had bought the stock of Johnson & Johnson (maker of smoking-cessation products such as Nicorette gum and Nicoderm patches) 20 years ago, your total return on that investment (with dividends reinvested) would have been 806 per cent – a handsome 11.6 per cent annually. And if you'd bought tobacco giant Altria Group Inc. instead? Your 20-year total return would be 1,566 per cent – 15.1 per cent annually.
Food for thought? Maybe. Just watch you don't eat too much.