A lot of well-known stocks (Coca-Cola, PepsiCo, McDonalds) have been hit by concerns over the long-term impact of GLP-1 weight-loss drugs recently.
The theory is that while drugs like Wegovy and Ozempic could work wonders for weight loss (and have several other health benefits), they could simultaneously have a negative impact on a range of industries. Do we need to be worried about their impact on UK stocks? Let’s discuss.
Medical technology
One area of the market that has been hit hard by GLP-1 fears is medical technology.
It seems that a lot of investors believe that weight-loss drugs are going to significantly reduce demand for joint replacements, heart surgery, and other age-related healthcare treatments.
Now, the share price of UK joint replacement company Smith & Nephew has already come down significantly on the back of weight-loss drug talk.
Personally though, I’m not too worried about the outlook for the company, or the industry.
For a start, the rapidly ageing global population should lead to higher demand for hip and knee replacements.
Secondly, plenty of fit, healthy people require joint replacements. My grandfather was a great example. He was always fit as a fiddle but still needed both his knee and hip replaced later in life (too much golf).
So, I think the fears here are overblown.
Food and drink
Another area of the market that has come under pressure as a result of weight-loss drug hype is food and beverage companies.
GLP-1 drugs suppress appetite. So, the theory here is that demand for food/snacks/drinks may drop off a little.
Now, there could be some implications for food delivery companies like Deliveroo and Just Eat Takeaway.com here. If people have less of an appetite, they may be less inclined to make that cheeky late-night food order.
But I can’t see the drugs having a major impact on companies like Tesco and Sainsbury’s.
Similarly, I can’t see the drugs having a big impact on Coca-Cola HBC (down 7% over the last month). People are still going to drink Coke at restaurants, bars, events, parties, and at home, in my view.
Alcohol
A third area of the market that has been impacted negatively by GLP-1 drug fears is alcohol.
Apparently, some users of these drugs have completely lost their desire to consume it.
Now, this could be a bit of an issue for a company like Diageo, which is the owner of Johnnie Walker, Tanqueray, Smirnoff, and a range of other well-known spirits brands.
If society starts drinking significantly less, its sales growth could slow.
Yet any reduction in demand from GLP-1 drugs may be offset by other factors such as the rising global population and the increase in wealth across emerging markets.
So, I don’t think the company is going to be in major trouble.
A good buying opportunity?
One thing that’s worth pointing out in relation to GLP-1 drugs is that they need to be taken continuously (like blood pressure medication) to be effective.
And there can be some side effects of taking them (some people feel sick when taking them).
So, we don’t know for sure that going forward, a large proportion of the population will be taking them.
In light of this, I don’t think it’s smart to be selling out of high-quality stocks like Diageo, Smith & Nephew, and Coca-Cola HBC right now.
If anything, I’d be looking at the recent share price weakness as a buying opportunity.
