HomeMarket NewsThe Impact of Weight Loss Drugs on Consumer Stocks: A Growing Trend...

The Impact of Weight Loss Drugs on Consumer Stocks: A Growing Trend to Watch

Actionable Trade Ideas

always free

Semaglutide pen

Douglas Cliff

In recent weeks, the impact of weight loss drugs has been grabbing headlines, causing investors and market watchers to take notice. While these medications, known as GLP-1 agonists, may initially seem relevant only to the food and beverage industry, their potential influence extends much further.

Industries like apparel retail, gaming, and airlines could all be affected by the increasing popularity of weight loss drugs. Leading medications in this space include Novo Nordisk’s Wegovy (semaglutide) and Ozempic (semaglutide), as well as Eli Lilly’s Mounjaro (tirzepatide).

Recognizing the early stages of this trend, BofA Securities suggests paying attention to its potential downstream effects. With some industries benefiting and others facing higher risks, these weight loss drugs could have long-term implications for consumer behavior.

Implications for Apparel Retail and Gaming

According to BofA analyst Lorraine Hutchinson, weight loss drugs could drive demand in the apparel retail sector by inspiring a wardrobe replacement cycle. The industry may see increased demand for offerings from traditional retailers, while plus-size retailers could experience a decline in demand. Athletic apparel brands like Lululemon and Deckers are also expected to benefit, as these drugs are associated with healthier lifestyles.

Gaming companies may experience an impact as well. BofA estimates that there is a relationship between obesity and problem gambling, with problem gambling accounting for 10%-30% of gaming revenue. If weight loss drugs are prescribed to more individuals, this could potentially lead to a decline in problem gambling and negatively affect the gaming industry. Companies like Boyd Gaming, Caesars Entertainment, MGM Resorts, PENN Entertainment, and Red Rock Resorts may face higher risks.

Exploring the Influence on Tobacco Usage and Airlines

While cigarette advertisements used to suggest that tobacco could curb appetites, BofA believes that the impact of GLP-1 drugs on the tobacco sector will be minimal. Nicotine is already known to suppress appetite, insulin levels, and increase metabolism.

BofA’s Lisa Lewandowski points out that nicotine is primarily used by teens and young adult women for weight management. This specific demographic may have limited access to weight loss drugs due to factors such as income, location, and insurance coverage. Additionally, doctors may be hesitant to prescribe these drugs to younger patients due to concerns about long-term use and eating disorders in young adults.

However, ongoing studies on the use of GLP-1 drugs to reduce cravings for substances such as nicotine and alcohol suggest a potential impact on tobacco usage. This could affect companies like Philip Morris International, Altria Group, and British American Tobacco.

Interestingly, weight loss drugs could also have an unexpected positive effect on the airline industry. Slimmer passengers mean less overall weight on board, leading to reduced fuel consumption, which accounts for approximately 25% of an airline’s expenses. Jefferies estimates that a 10-pound weight loss per passenger could save United Airlines $80 million annually.

Given this potential cost-saving impact, it’s worth paying attention to comments from management of other top airlines such as Delta Air Lines, American Airlines, Southwest Airlines, JetBlue Airways, and Spirit Airlines on this subject.

Conclusion

The growing trend of weight loss drugs is causing ripples in various consumer industries. With potential implications on apparel retail, gaming, tobacco usage, and even airlines, investors and traders should closely monitor the impact of these medications on related stocks. As the market adjusts to the long-term effects of GLP-1 agonists, opportunities for profit and risk will emerge. Understanding the potential influence of these drugs can help make informed investment decisions.

For more in-depth analysis on the impact of weight loss drugs and their effect on consumer stocks, be sure to check out the Oct. 14 Wall Street Breakfast Catalyst Watch podcast.

Swing Trading Ideas and Market Commentary

Need some new swing ideas? Get free weekly swing ideas and market commentary from Jonathan Bernstein here: Swing Trading.

Explore More

Weekly In-Depth Market Analysis and Actionable Trade Ideas

Get institutional-level analysis and trade ideas to take your trading to the next level, sign up for free and become apart of the community.