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Forget Food Fads — Profit From Pills

These companies can help keep you (and your portfolio) healthy

   

Weight Watchers (NYSE:WTW) reports fourth-quarter earnings after the bell today … and frankly, I can’t get myself to be all that excited about it.

It’s not because of the lackluster growth we’re likely to see: Analysts expect 87 cents per share for Q4, just a penny better than WTW reported a year ago, and full-year EPS is supposed to improve by less than 1% over 2011. Far from awful, but far from good.

No, I’m just not a huge fan of diet stocks — and I think there’s better ways to ride an increasingly health-conscious America to profits.

Dieting Doesn’t Do It

Health trends come and go faster than the hottest runways styles. One day its low-carb, the next day it’s South Beach, the next day its Paleo, and so on and so on. I don’t think diets will ever fade away, but I also doubt that any one diet will ever truly stick; thus, I would be hesitant to plow my money into a company counting on that.

Just look at NutriSystem (NASDAQ:NTRI), for one. The commercials might claim it works for all the women in those before-and-after pics, but it sure isn’t working for shareholders. NTRI stock has been cut by more than half in the past five years.

During that same time, the company’s profits have declined by double digits annually, and NutriSystem is expected to post a much bigger loss (14 cents) in Q4 than it did a year ago (4 cents). Plus, that expectation is actually lower than 90 days ago, when analysts forecast a 1-cent loss.

Don’t get sucked in by NutriSystem’s fantastic 8% yield, either. The dividend has remained at 17.5 cents quarterly ever since it started making payouts in May 2008 — it’s the huge share decline that has jacked up the yield. What’s worse, it’s not a sustainable payout. Based on next year’s expected earnings and that 17.5-cent payout, it will shell out almost twice its 37 cents in expected earnings for 2013.

Weight Watchers isn’t in such dire straights. Its numbers aren’t as ugly as NutriSystem’s, it’s a ubiquitous name and a seemingly more accessible program (and sponsor Jennifer Hudson does look goooood post-diet). WTW isn’t a bad company or a bad stock by any means … I just think there’s a better business to target for your health-focused picks.

Pills, Pills, Pills

The United States of America is one nation, under pills. Whether it’s prescribed or preventative, the number of Americans taking vitamins, supplements and medications just keeps growing.

In fact, more than half of U.S. adults now take some kind of vitamin or supplement. The booming industry rakes in a whopping $30 billion a year. The way to cash in on that? Retailers like GNC Holdings (NYSE:GNC) and The Vitamin Shoppe (NYSE:VSI).

Vitamin Shoppe has grown revenues every year since 2009, and that should only continue as the company expands. It already boasts nearly 600 free-standing stores; now it’s inching into Canada, where average household wealth has actually surpassed U.S. (and thus should mean better consumer spending.) It’s also planning to add 57 stores in America this year.

Plus, the company acquired Super Supplements for $50 million — a deal recently approved following an FTC probe late last year. That gives The Vitamin Shoppe presence on the West Coast, along with access to Super Supplements’ Northwest distribution center.

Vitamin Shoppe reports earnings on Feb. 26. Analysts are expecting quarterly EPS of 40 cents, along with a full-year EPS of $2.10, which would be a 40% year-over-year improvement on 2011, which saw 50% bigger profits than 2010. Also promising is that VSI has beaten earnings estimates in four straight quarters, with two of those beats coming in the double digits.

The only thing I don’t like is that VSI is trading at 25 times next year’s earnings … but considering analysts expect the company to grow by 20% annually for the next half-decade, the high valuation is plenty justified.

If you’re looking for a better value now, GNC is a more reasonably priced (but still promising) option.

The main difference between it and VSI is that GNC sticks its stores into shopping malls instead of going with the free-standing model. Still, that approach is working just as well. GNC has improved sales every quarter over the last three years, and when it announces earnings tomorrow, it’s expected to continue that streak with 12% revenue growth. The Street believes GNC also will report a 31% jump in Q4 earnings, and full-year earnings should clock in 50% better than in 2011.

Looking forward, GNC is expected to post 20%-plus earnings growth over the next five years, and shares look attractively valued at 13 times next year’s earnings.

Bottom Line

For once, you can take a cue from those horrible late-night infomercials: Don’t worry about frozen meals or points programs, just take these pills.

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


Article printed from InvestorPlace Media, http://investorplace.com/2013/02/forget-food-fads-profit-from-pills/.

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