With weight loss drugs like Ozempic taking the market by storm recently, there have been a lot of theories about how it will impact various industries. Needless to say, some are better than others.
For example, one analyst from Jeffries suggested the drugs could save airlines millions by reducing their customers’ weight. Shout out to @FusionptCapital for highlighting this brilliant idea. 🙃
A slightly more believable thesis is that these drugs are impacting food and beverage stocks by encouraging people to eat less and choose healthier foods. That’s partially been used to explain the recent weakness in stocks ranging from Coca-Cola to General Mills. And that explanation is not entirely without merit. 🤔
Recently, the nation’s largest retailer, Walmart, said its shopping data indicated a slight decline in food-shopping from people taking Ozempic and other appetite-suppressing medications. 🛒
However, that broader theory was put into question today by PepsiCo, which beat analysts’ earnings and revenue expectations. Volumes were down again, but pricing power and favorable currency translations helped drive sales growth.
Citi’s analyst, Filippo Falorni, even asked the company directly about the impact of these drugs on its business. Pepsi’s CEO Ramon Laguarta said, “So far, the impact is negligible in our business. Overall, if you take global consumption, there are obviously a lot of question marks with regards to the obesity drugs when it comes to medical testing or scalability of the usage of this or what is the impact really on consumer choices.”
He noted that they’re closely observing the growth of this trend and its potential impact. But for now, it’s negligible, with the industry’s other structural growth trends remaining firmly in place. 📊
So what’s driving the decline in these stocks if it’s not the U.S. population suddenly becoming healthier? Well, much of it could be the rising interest rates theme we’ve been discussing. As the risk-free rate rises, the appeal of low-growth, high-dividend paying stocks like consumer staples, utilities, telecom, and other industries diminishes.
And if we look at a selection of popular names like Pepsi, General Mills, Coke, and Hershey, they all peaked in price around May when interest rates bottomed. Their declines also accelerated when interest rates made new cycle highs about two months ago. 👀
Overall, the use of Ozempic and other weight-loss drugs will be a major trend felt across industries. However, it’s far too early to tell the potential consequences since less than one percent of the eligible U.S. population currently uses them. 🤏
It’s a good reminder to check your narratives with data and explore all possibilities before assigning something a cause-and-effect relationship, even if it seems like a logical one. Because often in markets, the most straightforward factor impacting a stock is the one staring us right in the face. 😐