A new Merrill Lynch research report detailing the firm’s most promising investment themes, and subsequent stock picks, carries the usual assortment of technology-based strategies where reasonable investors have a right to be skeptical. The potential applications for big data, for instance, remain unclear despite the hype, as do the adoption rates for electric vehicles.
Of all the secular growth themes detailed, investments surrounding the global obesity epidemic – Merrill Lynch has coined the term “Globesity” – seems the closest to a sure thing, even though regulatory risk remains a factor.
Strategist Beija Ma wrote that the obesity rate has tripled since 1980 and that not a single country has been able to stop the rate from climbing. The future is no less alarming: “Today, almost one-third of the world’s population or 2.1 billion people are now overweight, including 671 million who are obese. By 2030, close to 50 per cent of the world’s population is projected to be overweight or obese,” according to Ms. Ma.
These projections feel much more believable than the claim that artificial intelligence will transform every element of our lives, in light of aging populations, sedentary jobs, online entertainment and richer diets in developing countries where the standards of living are rising quickly.
The accompanying table details Merrill Lynch’s top picks among stocks where Ms. Ma sees a high degree of exposure to the obesity theme. The companies are a mix of pharmaceutical providers, health-products manufacturers and health services.
In the past 12 months, Planet Fitness Inc. is the top performer, more than doubling in value. Dexcom Inc., which makes blood-glucose monitoring equipment for diabetics, has appreciated 35 per cent. Stryker Corp. rounds out the top three with a gain of 26 per cent for the past year.
Whole Foods competitor Sprouts Farmers Market Inc. has been the worst performer by a significant margin, averaging a loss of 9.7 per cent annually over the past three years.
Stryker Corp. and Zimmer Biomet Holdings Inc. focus on orthopedic procedures such as hip and knee replacements. The sector has few providers but is highly competitive – one company can dominate for years in a specific area before the others catch up. But aggregate demand growth for the orthopedics sector as a whole is undeniable. The American Academy of Orthopaedic Surgeons cites research predicting that by 2030, the number of U.S. knee-replacement surgeries will increase more than sixfold to 3.5 million annually.
Compared with investment themes such as AI, machine learning, robotics and alternative energy, “globesity” might be the least dramatic of Merrill Lynch’s favourite growth themes. It is, however, the strategy where revenue growth is likely the most reliable, and the most suitable for long-term investors.
Scott Barlow, Globe Investor’s in-house market strategist, writes exclusively for our subscribers at Inside the Market.
Scott Barlow