Fattening Up A Portfolio While Slimming Down

By Aaron Levitt | June 01, 2011 AAA

Over the last 30 years, the developed world's abundance of food has been both a blessing and a curse. Throughout the U.S., United Kingdom and many other parts of the industrialized world, this large quantity of cheap food has become a problem. Obesity has turned into an epidemic. What's even scarier is that in the emerging world, from the Middle East to China, have experienced a rapid increase in the numbers of children and adults exceeding a healthy bodyweight. World Health Organization research shows that globally, more than 1 billion adults are overweight and at least 300 million of them are clinically obese. (For related reading, see What Is The World Trade Organization?)
Funds like the Global X Food ETF (NASDAQ:EATX) have sprouted up to take advantage of the world's growing love affair with food, very few investors have looked at the flip-side potential. With personal responsibility becoming a bigger issue and costs skyrocketing, playing the trend of obesity may be just as lucrative for investors.

TUTORIAL: Microeconomics 101

A Sad Long-Term Trend
Nearly Two-thirds of Americans are overweight, and that number continues to grow. Analysts at Wedbush Securities predict that the overweight population of America will grow 3.7% annually until 2015. That's roughly nine million people a year. Along with waistlines, the cost for treating continues to grow. The medical care costs of obesity in the United States are staggering. The direct cost for treating obesity related problems totals around $168 billion. Obesity is associated with a roughly $2,800 higher annual medical care costs per person. Private insurance is feeling the strain as well. Obesity accounts for 13% of private insurance expenditures. Insurer Aetna (NYSE:AET) recently invested $1 million to support five research think-tanks designed to better understand the causes of the nation's obesity epidemic and develop viable solutions to the core problems. (To learn more, see What Obesity Is Costing You.)

As the world moves towards less physical activity and increased consumption of nutritionally deficient, high saturated, fatty foods, obesity rates and its complications will continue to rise. The emerging world is seeing that trend first hand. Brazil is one of the fastest growing "fat" nations. Since 1990, the proportion of Brazilian men over the age of 20 who are overweight has more than doubled from 20 to 50%. For women, more than 48% were overweight and 17% are considered obese. Health policy makers in the nation estimate that within 10 years, Brazil will reach the world-beating U.S. obesity levels of 36%. Mexico has already beaten the U.S. in obesity numbers due to the nation's fast-food culture and record-breaking consumption of soft drinks. India is projected to have the most diabetes cases globally by the end of 2025.

A Weight-Loss Portfolio
As we live longer and our populations continue to grow, health care remains attractive as a long-term bet. Funds like the SPDR S&P International HealthCare Sector (NYSE:IRY) make sense as overall plays on the growth in spending. The blend of personal responsibility and epidemic-like concerns with regards to obesity, make it an interesting bet as well. Here are some picks to play the trend.

With a market value of $6.3 billion, Weight Watchers (NYSE:WTW) is the industry leader and is more than 15 times larger than rivals such as Medifast (NYSE:MED). The company operates globally throughout the U.K., Canada and Australia. However, despite its impressive size, Weight Watchers only serves about 3 million Americans through its programs. That leaves a lot of room for growth. For those looking for a beaten down weight loss pick, NutriSystem (NASDAQ:NTRI) has seen its stock price decline along with demand for its prepackaged meals since 2007. However, the company has cut costs and introduced a new "For Men Only" line. Shares yield 5%.

Sadly, obesity and diabetes go hand and hand. Device maker Medtronic (NYSE:MDT) offers some of the most cutting edge insulin pumps, while Novo Nordisk (NYSE:NVO) is the leading insulin producer.

Finally, for those investors looking for more risk, the biotech trio of Arena Pharmaceuticals, (NASDAQ:ARNA), VIVUS (NASDAQ:VVUS) and Orexigen Therapeutics (NASDAQ:OREX) are all working on the next stage in obesity drugs. If these stocks do hit gold, it could be gold for their shareholders as well.

Bottom Line
With the world eating more high fat foods and living an increasingly sedentary lifestyle, obesity and its complications are reaching epidemic proportions. With the numbers of overweight and obese people growing globally, investors may want to consider stocks on the front lines of that battle.

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