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2 Healthy Portfolio Picks
07/28/2011 1:30 pm EST
Over the past 20 years, Americans’ increasingly sedentary lifestyles and unhealthy eating habits have contributed to a growing obesity epidemic, and that has spelled opportunity for weight management companies, writes Peter Staas of Personal Finance.
How big is the country’s weight problem?
Data from the US Centers for Disease Control and Prevention (CDC) indicates that in 2009, only Colorado and the District of Columbia could claim obesity rates below 20%. The CDC estimates that roughly 66% of the adult population is overweight, and 34% qualifies as obese.
The implications of this trend are staggering: A 2009 CDC study found that the direct and indirect costs of obesity amounted to at least $147 billion per year. It’s also estimated that if current trends continue, by 2050 one in three Americans will develop diabetes at some point in their lifetime.
Although admonitions from the CDC and US Surgeon General haven’t intruded on the public’s consciousness, anecdotal evidence suggests that more Americans are aware of obesity’s dangers and are taking steps to live healthier lifestyles. Even video-game designers have picked up on this trend, producing a number of fitness-oriented titles that require active participation rather than simple thumb-twiddling.
Six months ago, we highlighted two plays on an increasingly health-conscious US consumer. Here’s how they’ve fared.
Weight Watchers International (WTW)
A leading provider of weight management services in North America, Europe, and Australia, Weight Watchers continues to benefit from the great slim-down.
The company’s legacy business model relies on meetings that help people lose weight through sensible diets, exercise, and behavior modification. Each week, approximately 1.3 million members attend almost 50,000 Weight Watchers meetings around the world, which are run by more than 15,000 leaders.
The company’s key North American business (about 65% of revenue) took a hit during the Great Recession, but has taken off in 2011, thanks to a successful advertising campaign featuring singer and actress Jennifer Hudson. The unveiling of an easier-to-use points system and the rollout of integrated social networking and smart phone applications have also energized business.
In the first quarter, the firm’s revenue soared 28% from year-ago levels, fueled by a 22% increase in meeting fees and a 65% jump in Internet sales. Investor demand after these blowout results enabled the stock to more than double in price since we first highlighted the company.
We expect the firm’s online segment to grow at a rapid clip in coming quarters and remain sanguine about the company’s long-term growth prospects. But Weight Watchers International rates a hold because the stock’s lofty valuation leaves little room for error.
NEXT: Life Time Fitness (LTM)|pagebreak|
Life Time Fitness (LTM)
This Minnesota-based firm designs, develops, and operates family fitness and recreation centers that focus on offering premium amenities and a resort-like experience for a monthly membership fee of $60 to $80 per person. At the end of 2009, the company ran 89 centers in 19 states.
In addition to a second-floor fitness center that averages about 40,000 square feet and contains 400-plus pieces of equipment, Life Time Fitness’ clubs include rock-climbing walls, fitness studios for Pilates and yoga, basketball and tennis courts, an aquatic center, and club restaurant.
A high-quality spa similar to those found at five-star resorts rounds out the experience. Extensive childcare centers provide plenty of activities for kids.
Monthly membership fees account for 60% of the company’s revenue, with the remainder coming from the restaurant and a wide range of classes and activities. Besides basketball leagues and instructional classes, Life Time Fitness centers also runs summer camps for both kids and adults.
Although the stock has treaded water over the past six months, we still like the company’s long-term growth story. Life Time Fitness is a buy under $43. [LTM closed just a few cents below that on Tuesday—Editor.]
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