Obesity Discussion Forums

[Obesity Discussion]

The Obesity Index
James Altucher, Formula Capital 04.16.07, 1:00 PM ET



When people are worried about the U.S. economy, they always talk about esoteric things like the current account deficit or the inverted yield curve. To be quite blunt, none of those things means anything.
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The inverted yield curve is a predictor of nothing, and the current account deficit is actually probably a sign that good times are coming. Just look at the countries with surpluses throughout recent history, Japan and Germany being recent examples in the 1990s.
What I worry about is America's waistline. We have gotten fat and lazy as a culture, and I am just as guilty as everyone else: I eat my donut and drink my coffee with half and half and three sugars every morning while I read the cartoon section of the newspaper. But the statistics are frightening: 6.8 million U.S. citizens are 100 pounds or more overweight. A hundred pounds! Fully one-third of the people in this country are considered overweight, and about one-fourth are considered obese.
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This has severe effects on our health care system: More than 300,000 deaths per year are attributable to obesity, and more than $33 billion is spent each year on health care services related to obesity. These numbers are going up every year.
This is a demographic trend that needs to stop, and the way it will stop is through the growth of the following companies. I set up a portfolio on Stockpickr.com of what I call the Obesity Index. These are companies that are attempting to tackle the obesity problem in our society, and many of them are dirt-cheap at the moment.
For instance, check out NutriSystem. When you go on the NutriSystem diet, the company sends you its pre-packaged meals every day. It sells food, books and other products related to its weight-loss initiatives. The company is phenomenally profitable, with a 75% return on equity and 200% year-over-year growth in earnings. It also has $80 million of cash in the bank and no debt. And finally, analysts are expecting over 50% growth this year, yielding a cheap forward price-earnings multiple of 14.
The Forward Emerald Growth Fund (HSPGX) is a big holder of NTRI shares. In a Feb. 2 interview with Barrons, manager Ken Mertz said about NTRI: "I think their main growth driver that we see in 2007 continues to be the expansion of the men's line. They do a lot of advertising with ex-athletes, especially football players, drawing in men. Then they are also introducing this year the seniors' program. Most of the advertising and programs, from Weight Watchers to Jenny Craig and so, have been more geared to the female side."
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Another company on the Obesity Index that has been largely ignored by Wall Street is Herbalife. The company trades at just nine times cash flows, despite solid 40% year-over-year earnings growth (both for last year and expected for next year). Herbalife sells a variety of weight-loss products, healthy snacks, nutritional supplements and the like.
One fund that I like to track that owns both HLF and NTRI is the Winslow Green Growth Fund (WGGFX). The fund has outperformed the Standard & Poor's 500 Index by an average of 6% per year over the past five years and focuses on small-cap and mid-cap companies that management views as "environmentally responsible." Other holdings include online advertising company aQuantive, "green" coffee company Green Mountain Coffee Roasters and open-source software company VA Software.
Good for investors, but bad for the U.S., the seven companies that make up our Obesity Index are going to continue to grow, pun intended.

Obesity Index

[Merle]

We need to start more money to prevent obesity, so we do not have to spend so much after the fact to fix the results.

[Irving]

in theory these companies should make a fortune, but i would be terrified that one big lawsuit could crush any of these herbal companies. i would think the market was so saturated that these companies would not be making as much money as in the past it now seems there is herbal everything everywhere