The new class of weight loss drugs such as Ozempic and Zepbound are having a profound impact not only on the pharmaceutical and healthcare industries but also on areas of the economy ranging from gyms and weight loss clubs to fast food restaurants and clothing retailers.
Earlier this year, the nutrition and weight management company Jenny Craig filed for bankruptcy after 40 years as a going concern, citing a decline in sales and membership that it largely blamed on the new class of weight loss drugs. Stocks of many companies have pulled back in recent months over fears that their sales too will be hurt as people turn to prescription drugs to lose weight and begin to eat substantially less and make healthier choices. Investment bank Goldman Sachs (NYSE:GS) has forecast that global sales of anti-obesity medications could grow from $6 billion this year to $100 billion by 2030.
While there is a lot of hype and expectation around these new drugs, much of the concern seems overblown at this point. Still, here are three stocks feeling the weight of the Ozempic effect.
Hershey (HSY)
Chocolate maker Hershey (NYSE:HSY) can’t seem to catch a break. First, the company’s stock gets knocked lower on news that this year’s cocoa crop got largely destroyed by flooding in Africa, sending prices for the commodity higher. Now, HSY stock gets another knock over concerns that the new batch of weight loss drugs will stop consumers from buying its chocolate treats.
Year-to-date, HSY stock is down 18%. The decline comes despite the company reporting strong quarterly results and raising its dividend payment to shareholders. This past summer, Hershey lifted its quarterly dividend by 15%, taking it to $1.19 per share for a yield of 2.58%. The dividend is just one reason to buy HSY stock on the dip. Despite this year’s pullback, the company’s share price is up 72% over the past five years and it has proven to be a long-term winner for investors.
McDonald’s (MCD)
The stock of quick service burger chain McDonald’s (NYSE:MCD) is recovering now, but that’s after the share price declined 13% between September and October over concerns that people will stop eating its food once they start taking weight loss medications. MCD stock has gained 8% in the last month following typically strong financial results, and after the company outlined aggressive expansion plans. However, the share price remains nearly 5% below its 52-week high, largely due to weight loss drug fears.
This seems unfounded as there’s no evidence that Ozempic or Zepbound are hurting McDonald’s sales. In fact, all evidence points to the company continuing to fire on all cylinders. Not only did McDonald’s post strong third-quarter earnings, but it also just announced plans to open 10,000 new restaurant locations and add 100 million members to its loyalty rewards program by 2027. Like Hershey, McDonald’s also recently raised its dividend, increasing it 10% to $1.67 a share, giving it a yield of 2.31%.
MCD stock is up 10% in 2023 and has gained 58% over the last five years.
PepsiCo (PEP)
PepsiCo (NASDAQ:PEP), which sells soft drinks as well as Ruffles potato chips and Rold Gold pretzels, has seen its stock decline 6% in 2023 on worries about the impact of weight loss drugs on its future sales. Like the other names on this list, the slump has come despite no evidence that Pepsi’s financial results are being negatively impacted by drugs such as Ozempic. In fact, PepsiCo continues to churn out exceptional quarterly prints that demonstrate growth at the company.
For this year’s third quarter, PepsiCo reported earnings per share (EPS) of $2.24 and revenue of $23.45 billion. Analysts had expected a profit of $2.15 a share and revenue of $23.41 billion. The maker of Mountain Dew also raised its forward guidance, saying it expects annual EPS to rise 13%, up from 12% guidance previously. The company highlighted that its Gatorade sports drink saw double-digit revenue growth in Q3, while its Quaker Foods division gained market share in categories such as pancake mix.
On the date of publication, Joel Baglole held a long position in HSY. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
