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Investors looking for exposure to the booming GLP-1 weight-loss drugs market don’t have many options in the FTSE 100. There’s AstraZeneca — which has attempted to muscle in on the action without success — but not much else.
However, there are FTSE 100 firms that should be second-order beneficiaries of the powerful GLP-1 megatrend.
For example, consider comments made recently by Sean Dixon, co-founder of Savile Row tailor Richard James. He said customers are losing huge amounts of weight in an incredibly short time.
It’s not just half an inch here, maybe an inch there, it’s a considerable amount of weight loss and that means a whole new wardrobe.
Sean Dixon, quoted in The Independent.
Around 1.5m people in the UK are taking GLP-1 medications like Wegovy and Mounjaro. However, around 18m are living with obesity, so as these drugs get cheaper, this trend has much, much further to run over the next decade.
New wardrobes
It might be imagined this could benefit JD Sports, as younger generations slip into smaller-sized tracksuits and joggers. However, the biggest uptake of GLP-1 drugs is apparently among those in their 40s, 50s and 60s. These cohorts have more disposable income.
To my mind then, two stocks that look incredibly well set up to benefit from this trend are Next (LSE:NXT) and Marks and Spencer (LSE:MKS). Both should cater to older professionals undergoing significant weight loss.
M&S
Marks and Spencer (M&S) has a clothing customer base of 21m people. Unfortunately, they were unable to buy online earlier this year due to the infamous cyberattack.
In the six months ended 27 September, this incident caused the firm’s pre-tax profit to crash 55.4%. Any repeat of this is a major risk, especially as management has said that “the recovery curve has been slower” for its Fashion, Home and Beauty division than food.
The share price remains 17% lower than April. However, this leaves the stock trading at just 10.2 times next year’s forecast earnings. There’s also a 2% forward-looking dividend yield.
Zooming out, I think that’s too cheap for a high-quality business like this. M&S is undergoing a “factory to floor” supply-chain overhaul, including investing £120m in warehouse automation. It aims to double online non-food sales to nearly £3bn to close the gap with rival Next.
Strong overseas growth
Speaking of which, Next continues to put up very solid numbers. Last month, it increased full-year guidance for the umpteenth time and now expects a pre-tax profit of £1.13bn.
Particularly impressive is its overseas business, where sales jumped 38.8% in the third quarter. In the US, where around 12% of the population have already taken weight-loss drugs, sales of Next-branded clothes are surging.
This overseas growth is important because the UK economy remains weak, adding risk to retailers like Next. The stock’s valuation is also higher, at 17.8 times forward earnings.
However, given the firm’s market-leading position and strong history of execution, I don’t think the stock’s overvalued. It also sports a decent-ish 2.3% forward dividend yield.
Looking ahead, the overseas opportunity remains very large, with majority-owned brand Reiss resonating very strongly with customers worldwide.
For investors looking to invest in a top-notch retailer, Next stock deserves serious consideration, in my opinion.
