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Tickers in this Article: HLF, NTY
As health problems related to rising obesity begin to manifest themselves in the years ahead, healthcare and pharmaceutical companies are the most obvious beneficiaries; however, companies who sell nutrition and weight management products are also set for a boost. Herbalife (NYSE:HLF) is a leader in this weight management industry.

According to the Center for Disease Control, 36% of Americans were classified as obese in 2006. This means there are a lot of people out there searching for weight-loss solutions, solutions often found in a can of Herbalife's "Formula 1" diet shake mix. If Herbalife's fourth quarter results and forward looking guidance are any indication, the upside for the stock could be huge. (To learn more on top-down investing, see Taking Global Macro Trends To The Bank.)

Slowdown? What Slowdown?
Herbalife saw its income jump to $53.8 million (77 cents a share) in Q4 from $41.7 million (56 cents a share) in the comparable period last year. Its revenue line increased 19% to $578.1 million from $487.4 million last year. Analysts had been expecting earnings of just 73 cents per share on revenue of roughly $536.6 million.

Rival nutritional-supplement maker NBTY (NYSE:NTY) is struggling. In its most recent quarter its revenue growth rose an anemic 0.9% and it reported a roughly 10% decline in net income. This makes Herbalife's results look even more attractive by comparison.

Going forward, management at Herbalife expects earnings in 2008 to be in the range of $3.25-3.30 per share, which is north of the $3.17-3.23 it had previously forecast, and it's also ahead of the $3.20 per share that analysts forecast. This shows Herbalife has the ability to grow despite a slowing economy and stiff competition from diet food companies such as privately held Jenny Craig.

It also shows that Herbalife's move beyond simple multi-vitamins into products like meal replacements and appetite suppressants is working. It also shows that Herbalife's footprint and distribution base are valuable assets that help set it apart. It sells its wares in 65 countries, and it has about 1.7 million distributors.

El Cheapo
The stock looks cheap right now. At present the company trades at about 13.2-times management's 2008 forecast of $3.25 per share, yet it's expected to grow its bottom line at a 16.4% pace from 2007 to 2008. That's pretty attractive. Rival NBTY trades at about 10.6-times 2008 forecasts of $2.83 a share, but it's expected to see its EPS fall to $2.42 a share in fiscal 2009. (For added insight, see Can Earnings Guidance Accurately Predict The Future?)

As a bonus Herbalife's stock pays a small dividend whose current yield is about 1.9%.

Bottom Line
The stock looks like both a bargain and a safe haven, a rare combination in this market. Long story short, I think the stock would be more fairly valued in the mid-$50s. I think it has the potential to trade to this level within the next 12 months. The small dividend is the fat-free icing on the cake.

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