2 Under-the-Radar Weight Loss Plays
Pharmaceutical companies have already had giant moves, but there's another group leveraged to weight loss that's at a much earlier stage.
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Market action is mixed on Monday as early strength is sold, and traders are hesitant to chase. There are only about 20 stocks up more than 10% on my screens, and very few are trading at intraday highs. Breadth is positive, but is slipping.
The current dilemma of the market is that there won’t be a lot of great entry points until there is more severe corrective action of a longer period of accumulation. There aren’t a lot of compelling reasons to chase stocks higher right now, especially as we move into first-quarter earnings season.
Amid this environment, I'm working on finding stocks and themes I believe will see further upside as earnings news is released. One theme of particular interest is weight loss. Some of the best-performing stocks over the past year or so are pharmaceutical companies that are developing a new class of weight-love drugs called GLP-1. Companies such as Eli Lilly LLY, Novo Nordisk NVO, and Viking Therapeutics VKTX have already made giant moves and are now seeing slowing momentum.
But there is another group leveraged to weight loss that is at a much earlier stage. That is the telehealth group, where licensed healthcare professionals provide prescriptions and medical advice to patients at home. Because of the shortage of GLP-1 drugs this business has not ramped up as quickly, but it is an easy and convenient resource for many people.
I have my eye on two stocks in this area. The first is LifeMD LFMD, which has made a big move since being added to my Watch List last year. I still like the stock and am looking to take advantage of a recent pullback to add more shares.
LifeMD grew revenues 60% in the fourth quarter and is expected to see 40% growth in the first quarter of 2024. The current EPS estimate for 2024 is $0.33 and it is projected to grow 48% in 2025 to $0.49.
The second name I am watching is Hims & Her Health HIMS, which offers a range of curated prescription and non-prescription health and wellness products. It also provides prescription medication on a recurring basis and ongoing care from healthcare providers.
Hims sells over-the-counter drug and device products, cosmetics, and supplement products primarily focusing on general wellness, sexual health and wellness, skincare, and hair care. The company also recently entered the weight-loss area and is offering the new class of drugs that have booming popularity.
The fourth quarter of 2023 was Hims' first profitable quarter after coming public as a SPAC. Revenue grew 48%. The company guided revenue growth of about 42% for the first quarter of 2024 and over $1 billion in revenue for the year. It also should be EBITDA positive going forward. The valuation is a little aggressive, so the company will need to perform well.
Technically, HIMS stock ran up nicely following earnings and hit the $17 level. It has since pulled back toward support at $14 to $14.50. I am looking for this level to hold for the stock to start to anticipate the first-quarter report sometime in May.
As always, we would not chase Monday's strength but will look for incremental accumulation as the stock tests support levels. We will keep tight stops and reduce if market conditions do not cooperate.
At the time of publication, Rev Shark was long LFMD and HIMS.
