Even major FTSE 100 stocks aren’t immune to Black Swan events and one of them could be heading their way in the shape of GLP-1 weight loss drugs like Ozempic and Wegovy.
These are the two best known prescription medications for people living with obesity. Their early success has put a rocket under the shares of Danish pharmaceutical company Novo Nordisk, now Europe’s biggest company. Other sectors won’t come out of this so well.
GLP-1 drugs were developed to treat type II diabetes, by helping users reduce blood sugar levels. They suppress appetite by telling the brain you’re full. They also slow digestion, so food takes longer to leave the body. It’s a huge step forward.
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Unforeseen consequences
However, it may be a huge step backwards for FTSE 100 companies selling addictive products like sugar, alcohol and tobacco, which could experience a sharp drop in demand among their most avid users.
If I was the CEO of British American Tobacco, Imperial Brands and spirits maker Diageo, I’d be worried. We all know how hard it is to quit smoking. Around 30% of smokers try every year, but few succeed at the first attempt.
Giving up drinking isn’t easy either. Dry January has made some inroads and younger drinkers are boozing less. There are an estimated 600,000 dependent drinkers in the UK, but less than one in five receive treatment. Now those who want to kick or cut back have another weapon in their armoury. Diageo’s biggest market is the US. Ozempic et al will be huge over there.
There could be a snowball effect too. As more people stop drinking, it will become easier for politicians to crack down on those who do. I’m keen to add Diageo to my portfolio, taking advantage of a 15% drop in its share price over the last year. Now there’s a new threat I hadn’t considered.
Could be a game changer
I did buy consumer goods giant Unilever recently, as its shares looked nicely priced. However, as well as soap and shampoo, Unilever owns Ben & Jerry’s, and we all know how addictive that is. Plus it owns Hellmann’s, Knorr, Magnum and Wall’s.
Associated British Foods could also be at risk. Its grocery brands include Allinson’s, Allied Bakeries, Blue Dragon, Patak’s, Kingsmill, Jordans, Mazola and Silver Spoon. ABF’s sugar business has the capacity to produce some 4.5m tonnes of sugar annually. Will the world be eating as much of it in future? At least ABF has Primark. All those newly slim shoppers will need a new wardrobe.
What about Tesco, Sainsbury’s, Ocado, Marks & Spencer Group? For that matter, what about The Restaurant Group? Greggs?
These are early days. Not everybody will be taking Ozempic. But with the Health Survey for England 2021 estimating 25.9% of adults in England are obese and a further 37.9% are overweight, many will be tempted. It’s something investors in FTSE 100 food, alcohol and tobacco stocks didn’t have to consider a few months ago.
Fortunately, there are plenty of other Footsie stocks that won’t be affected, whatever happens. There are plenty that I’m bullish on right now, too many to mention them all here of course. Make no mistake, I still believe buying shares in quality companies is the best route to wealth generation available to us all!
