Image: Domino’s stock has slumped recently due to weakening same-store sales expansion and concerns that weight-loss drugs will have on snack and food demand.
By Brian Nelson, CFA
The American eater continues to fight the “battle of the bulge” as many seek improved lifestyles and the health benefits from losing weight and getting in shape. The healthcare industry is delivering on this front, too, with diabetes drugs from Novo Nordisk (NVO) and Eli Lilly (LLY) called GLP-1 agonists that also have weight-loss benefits. Though we applaud what looks to be a solution in part for the obesity epidemic that has overtaken the U.S., investors are growing concerned that snack and food stocks will see slackening demand.
The retail sector, for one, is taking a hit from changing investor expectations in this regard. Among those facing weakness are packaged food entities such as PepsiCo (PEP), General Mills (GIS), J.M. Smucker (SJM), Mondelez International (MDLZ) and Hershey (HSY). Yum Brands (YUM) and Best Ideas Newsletter portfolio holdings McDonald’s (MCD) and Domino’s Pizza (DPZ) have also been caught among the stock-selling barrage. We expect the growing presence of weight-loss drugs to offer what we believe to be an ongoing short-term headline risk to such entities.
That said, we think it is far too early to estimate the long-term impact that weight loss drugs such as NVO’s Ozempic and LLY’s Mounjaro will have on changing food consumption habits. Though some consumers may alter what and where they eat as a result of weight-loss drugs, we think both packaged food companies and restaurant names will find a way to adapt and innovate to meet changing consumer demand in the long run. One good example over the years has been McDonald’s, which has adjusted its menu time and time again to meet consumers seeking healthier alternatives. We’ll continue to monitor developments across the healthcare and retail landscape.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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