Enjoy Nature's Bounty

By Will Ashworth | March 25, 2010 AAA

Healthy living. It's something all of us need for a more fulfilling and lasting existence. NBTY Inc. (NYSE:NTY) is just one of a number of companies continuing to deliver the goods in the nutrition business. Since last July, Nature's Bounty's stock has gone on a 33% run, 14% better than the S&P 500. As long as we continue to trail the rest of the industrial world in physical fitness and overall health, there'll be plenty of opportunity in the future for NBTY and company.

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5 Top Nutrition Companies - Annual Total Returns

Company 5-Year Return 10-Year Return
Perrigo Company (Nasdaq:PRGO) 24.4% 21.3%
NBTY (NYSE:NTY) 14.6% 12.4%
Herbalife (NYSE:HLF) 24.0% N/A
Usana Health Sciences (Nasdaq:USNA) -7.3% 26.3%
Schiff Nutrition (NYSE:WNI) 14.9% 10.4%

Mind-Boggling Returns
If you had invested $10,000 in an S&P 500 index fund at the end of February 2005, five years later you'd have the same amount or slightly less. If you had instead invested the money in any of the five listed above, with the exception of Usana, you'd have turned a healthy profit, especially if the portfolio was heavily composed of either Perrigo or Usana. While everyone else was suffering, you'd have been basking in sunshine. And those peaceful days appear ready to continue.

Not So Obvious
Of the five companies, three are mid-caps (Perrigo, NBTY and Herbalife), one is a small-cap (Usana) and the smallest, Schiff, is a micro-cap. Schiff's quarterly results were better than analyst estimates. Earnings per share in the third quarter were $0.20, 43% higher than they were expecting. In terms of revenue, it generated $53.3 million, 7% better than the same quarter last year. Thanks to improving gross and operating margins, net income increased 58% to $5.7 million from $3.6 million.

Management, pleased with its performance and a balance sheet overflowing with $46 million in cash, announced it was paying a fifty-cent special dividend to shareholders - its third in four years. It pays no regular dividend or repurchases shares so the special dividend has become its tool of choice to reward shareholders.

While it's currently looking to acquire vitamin companies with complementary products, it hasn't found an appropriate fit and rather than make a poor acquisition decision, the company is returning earnings to its owners.

Current Valuation Metrics

Company P/E P/B P/S P/CF
Perrigo Company 24.7 4.7 2.2 12.5
NBTY 14.7 2.5 1.1 16.0
Herbalife 13.4 7.2 1.2 9.5
Usana Health Sciences 14.9 6.6 1.1 15.3
Schiff Nutrition 17.9 2.2 1.3 9.2

5-Year High
Overall, these stocks have had a good run. Usana, however, ruins the party. It currently trades 48% below its 5-year high. Schiff is next at 22% below its 5-year high. But that's as much as these two companies have in common. In the past five years, Schiff's annual total return has been positive, in part due to its special dividend. The company has delivered gains of 17%, 30.6%, 8.9%, 4%, and 39.4% and is up 15% year-to-date. On the other hand, Usana's returns have declined in each of the last three years. Despite this glaring difference, Usana's current valuation is much dearer, so it would be wise to stay away.

The Bottom Line
Investing in health and wellness companies makes sense given our current focus. There are two ways to play this. My first choice would be to buy Schiff. Despite its volatility, it's one of the most consistent micro caps out there. However, if micro caps aren't your thing, buy First Trust's Consumer Staples AlphaDex ETF (NYSE:FXG). It tracks the StrataQuant Consumer Staples Index counting Herbalife and NBTY among its 38 holdings. Here's to good health! (Put a little green in your wallet by investing in these growing areas. For more information, read Top 10 Green Industries.)

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