The Profitable Mega-Trend Few Investors Are Talking About

by James Brumley | April 30, 2012 8:48 am

Workout185 The Profitable Mega Trend Few Investors Are Talking AboutAlthough the media and investors alike talk about them a great deal, theme-based investments rarely live up to the hype. A couple of recent examples include the expected (proverbial) land-grab of hepatitis-C stocks — which never actually materialized — and the advent of near-field communication (or NFC) technologies that make paying for goods at a cash register a much faster process, which has yet to progress beyond a “mere curiosity” status.

However, not all major trends peter out before rewarding investors. In fact, there’s a trend that’s actually doling out big rewards for one particular industry’s shareholders, even though the driving force behind these gains has largely been ignored. There’s room for more upside, too — a lot more.

The Real Deal

Odds are good that you’re part of this big trend without even realizing it. The latest statistics show that more than 50% of U.S. consumers now regularly use some sort of dietary supplement. All told, domestic spending on health supplements alone in the U.S. reached $28 billion last year, up from $23 billion a year earlier. The growth pace is accelerating, too.

Better still, the leading companies in this industry have been growing their bottom line for a while.

Best of all, however, their respective stocks actually are climbing to new highs, defying the marketwide lethargy and reflecting those great results.

For proof of the low-fat pudding, look no further than GNC Holdings (NYSE:GNC[1]). The nutrition and supplement retailer just posted its best quarterly numbers ever, earning 60 cents per share on $624 million in sales for Q1. Both numbers easily topped estimates as well as last year’s comparable figures, particularly on the earnings front. The pros were only looking for a bottom line of 52 cents this time around, and the company only earned 6 cents per share in the same quarter a year earlier.

GNC Holdings is hardly alone. Supplement manufacturer Herbalife (NYSE:HLF[2]) is poised to rock the boat in a bullish way, too, when it posts its Q1 numbers sometime in early May. Forecasters say the company is on pace to earn 81 cents per share on $892 million in sales — both of which are a little more than 12% better than the year-ago figures. After 12 straight earnings “beats,” however, one has to think more underestimation is in the lineup.

The list doesn’t stop there. Vitamin Shoppe (NYSE:VSI[3]) continued to crank up its top and bottom line right through the recession as if it wasn’t even happening; both reached record levels last year. Lululemon Athletica (NASDAQ:LULU[4]) — a maker of workout and fitness apparel — tells the same story. It increased sales from only $353 million in 2008 to $1 billion in fiscal 2011. Profits soared from $40 million to $184 million during that time, too, defying the notion that consumers have permanently tightened their purse-strings.

Lululemon has carried that uptrend into 2012, posting its best quarter ever when its shared its 2011 fourth-quarter number this March — a profit of 51 cents per share. Vitamin Shoppe is expected to do the same when it unveils last quarter’s numbers in a few days. The pros are looking for record per-share earnings of 57 cents.

Oh, and all four stocks are at or near all-time highs.

Were it one or even two of these semi-related names on a roll, it might be a curiosity worth noting, but nothing actionable. When all of the major names spanning several aspects of the “healthy lifestyle” industry are repeatedly hitting home runs. though, what you’ve got isn’t a fluke — it’s a full-blown trend. And in this case, it could be considered a mega-trend, and well worth investing in.

Bottom Line

All that being said, a small dose of healthy skepticism isn’t entirely out of line. Nothing lasts forever, right?

Well, while it’s true that not everything lasts forever, it’s not true that nothing lasts forever.

In this case, you really have to think about the context — living healthy is more than a fad or a cyclical boom. The rise of the home ownership based on hollow home-price support was cyclical. The mania to invest in Chinese stocks (no matter what the cost) in 2008 and 2009 was a fad. Eating better and living longer? That’s not exactly the kind of thing that becomes passé once people get in the habit and experience the non-fiscal benefit. It’s more akin to the rise of cell phones, which clearly never went away. Indeed, we couldn’t live without them now.

Or, if the concept doesn’t convince you, maybe a stat or number will. Try this on for size: The United States nutraceutical market is expected to grow at a compounded annual growth rate of 7.8% between now and 2015, which is one of the strongest growth rates for any industry for that timeframe.

Now that’s an investment-worthy paradigm shift.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Endnotes:
  1. GNC: http://studio-5.financialcontent.com/investplace/quote?Symbol=GNC
  2. HLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=HLF
  3. VSI: http://studio-5.financialcontent.com/investplace/quote?Symbol=VSI
  4. LULU: http://studio-5.financialcontent.com/investplace/quote?Symbol=LULU

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