Americans are always looking for new ways to improve their health, whether it is through vitamins, sports supplements or diet books. The industry will always have customers because in the current appearance-is-important world we all live in, health and nutrition are a going concern.
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From an investing viewpoint there are a number of companies that make, supply and market the nutritional products. There are also the retailers that specialize in selling the products. We'll look at six stocks that stand to capitalize on the industry.
One of the largest suppliers of nutritional products is NBTY Inc. (NYSE: NTY) and its approximately 25,000 products. Most people have heard of NTY's main brands, Nature's Bounty, MET-Rx and Rexall. The company is trading at a low P/E ratio of 9.9 based on 2010 earnings; however, the growth in earnings next year is only estimated to be 5%. Technically, the stock has been hit hard in 2010, and at some point in the low $30s the stock will once again become attractive.
Herbalife (NYSE:HLF) is slightly larger than NTY based on market capitalization, but lacks its competitor in revenue. The two companies offer similar products that help their users improve their health through supplements. The one major difference is that HLF expects more impressive earnings growth in 2011 (12%) versus NTY. The company also has a better chart and therefore is the better choice of the two.
There are two small players in the sector that also deserve a mention. Nutraceutical International (NASDAQ:NUTR) makes and markets thousands of nutritional products that are sold in stores throughout the U.S. The stock is trading with a P/E ratio of 10 based on 2010 earnings and nine using 2011 earnings. With estimated growth of 13.4% next year and a PEG ratio below 1.0, the stock is attractive at current prices. Schiff Nutrition (NYSE:WNI), formerly known as Weider Nutrition, is most widely known for it Tiger's Milk protein products. The stock is currently not on my radar as a buy due to the fact it is expected to see earnings fall in 2011 compared to 2010. There are too many better choices available.
Two of the retailers selling the nutritional supplements are Vitamin Shoppe (NYSE:VSI) and Vitacost.com (NASDAQ:VITC). Vitamin Shoppe operates nearly 450 stores in 37 U.S. states along with its website and catalog. VSI's offerings range from sports nutrition products to natural pet food. Fundamentally, the stock is trading with a P/E ratio of 21.6 based on 2011 earnings with growth of 30% expected from 2010 to 2011. That gives the stock a PEG ratio below 1.0 based on 2011 earnings, and makes the stock an attractive buying opportunity.
Vitacost.com is similar to VSI, except for one major factor, VITC does not have a brick-and-mortar presence, and it relies on the internet and mail order catalogs for sales. The two companies offer similar products that cover the scope of nutritional products. The chart of VITC is not as attractive as its competitor, however. Fundamentally, the stock trades at a 2011 P/E ratio of 16, and with estimated growth of 40% in 2011 the stock is greatly undervalued.
I believe there is room for all the players mentioned above, and that is why it comes down to fundamental and technical analysis to determine the best stock from an investment perspective. If I were force to pick two stocks from the list it would be NUTR and VSI. (For more stock analysis, take a look at A Good Omen From Oracle.)
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