This Isn't the End for Food and Restaurant Stocks

When you hear talk about the history of the Internet, you might instantly think of the last, frantic gasp of the dot-com bubble in 1999 and 2000 before the burst... But there were plenty of interesting Internet-related movements in the market prior to that date. My career in Wall Street started back in the mid-1990s, […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] This Isn't the End for Food and Restaurant Stocks By Enrique Abeyta --------------------------------------------------------------- [Here's What You Missed Yesterday [Porter's Big Update]]( The government is broken... the economy is broken... financial systems are failing. So, what's next for America? Hear from Porter Stansberry, who just returned after three years with a big warning about today's market environment... what's coming next... and a dead-simple solution to protect yourself. [Click here to tune in now](. --------------------------------------------------------------- When you hear talk about the history of the Internet, you might instantly think of the last, frantic gasp of the dot-com bubble in 1999 and 2000 before the burst... But there were plenty of interesting Internet-related movements in the market prior to that date. My career in Wall Street started back in the mid-1990s, and one of the days I remember well was Yahoo's initial public offering ("IPO") []in April 1996. The IPO itself was exciting. Yahoo was one of the first pure-play Internet companies to go public... And on its first day of trading, the stock exploded 270% from the IPO price. That might not sound that unusual to us now, given some of the overhyped IPOs we've seen in recent years... but back then it was something that had almost never happened before. What was equally as interesting as the price action around Yahoo, though, is what happened to other stocks... There weren't that many publicly traded companies to go long the Internet. There were, however, a lot of ways to predict how it would be bad for other industries. One of those groups was newspapers. Personally, I had always been a fan of both newspapers and the stocks. I remember buying two or three newspapers a day and reading them cover to cover when I was younger, and I was also the editor in chief of the second-largest newspaper at the University of Pennsylvania. Within a couple of months of the Yahoo IPO, the newspaper stocks had been absolutely destroyed. The talking heads and analysts all loudly proclaimed that the Internet would be the death of the newspapers. Why would you pay for news when you could just get it for free? The analysts – and the panicked sellers – weren't entirely wrong (eventually)... The issue was that the outcome that they were accurately predicting wouldn't happen for more than a decade. While there was some free news over the Internet, there was no real revenue to support any material amount of information since this was before advertising online had really taken off. Additionally, the only place you could access the Internet was at your computer. Back in 1996, the Motorola StarTAC was the leading edge of phone technology... and you weren't reading online news on that! Eventually we would all have mobile phones with data and be able to access the Internet anywhere. This would lead to a lot more eyeballs and lead to a lot more advertising... and then a lot more "free" news online. However, all of that didn't really happen for another 15-plus years... So newspapers still made for some great stocks across the period. I should know – I made money on them myself! --------------------------------------------------------------- Recommended Link: [Prepare Now: A Massive Wave of Bankruptcies Is Coming]( In 2009, Joel Litman warned investors about 57 different companies that were about to go bankrupt – 50 collapsed within days. Now Litman is stepping forward with another big bankruptcy warning. If you own a single share of stock – much less a business... a mortgage... or a loan of any kind – this will affect you. [Click here to learn more](. --------------------------------------------------------------- I mention this story because we're seeing something similar happening right now with the excitement around the diabetes and 'miracle' weight-loss drugs called GLP-1 agonists... []"GLP" stands for "glucagon-like peptide," and these were developed relatively recently – initially to help diabetics. They mimic the action of a hormone called glucagon-like peptide 1. When blood sugar levels start to rise after someone eats, these drugs stimulate the body to produce more insulin. The extra insulin helps lower blood sugar levels. This is obviously helpful for diabetics in managing their blood sugar levels... but it turns out it has an add-on impact regarding weight loss. The effect of lower blood sugar levels is that you have less actual appetite. Less food means less calories... and net-net, the GLP-1s have led to large weight loss for folks who use them. While these drugs showed great results with diabetics, the add-on impact of driving down appetite and thereby promoting weight loss has driven a huge amount of interest in the drugs recently. Just think about how many folks would love to lose weight and just take a drug to do it... No exercise, no calorie counting. This is great for humanity... but not so great for food companies – especially ones selling candy and snacks, right? []The recent success – and especially the publicity – behind these weight-loss drugs has resulted in many food and restaurant stocks getting crushed in recent months. Concern about the effect of these drugs has knocked many of these winning companies down by a quarter of their market cap or more in the past few months. Does the success of these drugs mean that a company is worth 25% less – either now or in the future? This is where it's interesting to dig a little further... []The first point to understand is that while these drugs are very beneficial, there are some drawbacks. Right now, the drugs are injected. Eventually they will be available in pill form, but that will take time. If a patient stops using the drugs, then they lose the benefits very quickly. This is a much bigger deal for patients. With these drugs being relatively new, we also don't really know the full extent of the potential side effects. There have been many times in the past where new drugs with great benefits emerge... but eventually side effects are detected that make the drugs non-viable. Now, I'm not saying this will happen with these weight-loss drugs (I don't think it will), but it's something to keep in mind. The other major issue with the drugs is the cost. Most of these aren't currently covered by insurance and the cost to the user is upward of $1,000 per month... meaning a high cost of about $12,000 per year. Like other successful drugs before, the eventual benefits could lead to prices coming down. However, this could be a lengthy process that could take years. Let's also consider some basic math on the drugs... There are about 260 million adults in the U.S. today. According to recent survey data from health policy research organization KFF, about 50% of respondents have heard about these drugs and might be interested. But the reality is that there will only be so many prescriptions made by doctors. According to a recent report from Morgan Stanley (MS), analysts thought the total U.S. market for these drugs could be nearly 25 million people by 2035. That's about 10% of the adult population and about 7% of the total population. Take a step back and realize this is an amazing number. The most prescribed drug in the U.S. is the generic version of Lipitor called atorvastatin (I take it), and it has about 25 million users today. What would these weight-loss drugs becoming the most successful drugs of all time mean? The initial results show that patients drop their caloric intake by 25% to 30% once they start taking these drugs. If we saw 10% of the population reduce caloric consumption by 30%, that would mean about a 3% drop in total caloric consumption. The stock market has extrapolated that this would hurt companies that make unhealthy food, like chocolate, potato chips, and hamburgers. []However, there isn't evidence that these drugs make people want to eat healthier. They just want to eat less. If something like this happened, you could actually see growth in the unhealthy areas. But take another big step back and think about these numbers... We're talking about a 3% reduction in the end market a decade from now. There are also a ton of "ifs" in there about safety, insurance, etc. Is this "risk" worth a quarter of the market cap of food and restaurant companies? I don't think so... Instead, I think this presents a great opportunity for investors. Regards, Enrique Abeyta --------------------------------------------------------------- If someone forwarded you this e-mail and you would like to be added to the Empire Financial Daily e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2023 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 1125 N. 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