More than 66% of Americans are overweight — and 33.9% of adults in the U.S. are obese.
By 2020, more than 75% of us may be fat.
I had to put down my Big Mac with extra cheese and push my supersized order of fries aside to type this article today.
(My hot fudge sundae will just have to wait until after my editor sees it.)
The obesity epidemic has reached a level where it’s affecting things like plumbing and public transportation…
Hospitals across the United States are replacing wall-mounted toilets with floor models to support the weight of obese patients, according to Reuters.
The Federal Transit Administration is requiring buses to be tested for the impact of heavier riders on steering and breaking.
There’s been talk about imposing a “fat tax” on the root of the problem: sugar-heavy soft drinks and processed and fast foods.
A new British Medical Journal study says a 20% tax would help curb obesity:
Economists generally agree that government intervention, including taxation, is justified when the market fails to provide the optimum amount of a good for society’s well-being. [This] include[s] a failure to appreciate the true association between diet and disease, time inconsistency (preference for short-term gratification over long-term well-being), and not bearing the full health and social costs of consumption.
Let’s be honest here: People will not eat any better if you tax their burgers and milkshakes at a higher rate.
And we certainly don’t need some bureaucrat telling us which foods have been deemed “bad for us.”
Folks will continue to hit the drive-thru and buy the supersize portion…
And as they look to weight loss drugs to regain control, savvy investors should look to this sector to line their pockets.
Why We’re Still Buying Hand over Fist
I told readers to buy into Arena Pharmaceuticals (ARNA) this month based on a heavily watched FDA decision on an obesity drug.
I recommended hedging with the June 2012 2.50 calls and puts…
Two days later, the hedge was up more than 112%:
We took those gains straight to the bank.
This wasn’t the first time we’ve traded Arena Pharmaceuticals. On March 19th, I recommended jumping into the stock and the July 2012 1.50 call options, as the company faced a near-term FDA panel review of lorcaserin for obesity.
While we were only hoping for a small move in the underlying stock, we got more than 50% instead — and close to a double on the calls in just days!
It doesn’t hurt that European regulators recently agreed to allow ARNA to seek approval for the obesity drug a few weeks ahead of FDA panel review…
And it won’t be the last time we trade it.
Big Loss Leads to Biggest Gains
Final approval could come as early as June 27th of this year.
If the FDA approves Arena’s drug, it’ll be the first new weight loss drug to reach market in years.
As we’ve noted in the past:
The price of a biotech and pharmaceutical company will go up as the date in questions draws closer. As an FDA decision date, Phase III result date, or conference nears and people expect to hear good news, crowds of speculators and traders start coming in to buy the stock, sending the stock up.
This happens over and over again with many biotechs and pharmaceuticals. The only key is having the information in as far in advance as you can…
Even if the FDA decides to delay its final vote by three months (as it did with Vivus), we’ll be alright — because we’re simply looking to profit from a spike in the options premium as the date draws near.
Vivus’ FDA decision date is July 17, 2012.
We’re looking to trade this, too, following a three-month FDA delay.
I expect both to move even higher heading into their respective FDA decision dates…
While you can always just buy the underlying stock and hope for a small bump, we’re looking for a triple-digit gain with options.
Stay ahead of the herd,
Ian Cooper
Analyst, Wealth Daily
Editor’s Note: “If Facebook was smart, it’d shelve its IPO plans,” Ian said in late 2011.
“In what’s likely to be a dramatic first day of trading, investors would be smart to pay close attention to the downward death spirals of Facebook’s buzz-heavy competitors… Stay away from this stock.”
Unfortunately, his warning fell on deaf ears. Ian was called an idiot by more than one reader, and his email inbox saw a backlash.
But as Ian points out, Facebook has been nothing short of a flop so far. The stock ended its first day only 23 cents above the IPO price. The stock dropped another 12% on day two. On day three, it was down to $30 and change…
On day four, Ian found this gem:
News reports indicate that big institutional investors received information about Facebook’s difficulty generating revenue shortly before the stock debuted, information that apparently wasn’t shared with other investors.
Facebook had dialed back its revenue expectations in a revised prospectus on May 9, but in a non-specific way. Reports out in the past 24 hours indicate that someone at the tech company gave Morgan Stanley and analysts at other underwriters more specific information about its revenue struggles. One investor was told revenue could slip as much as 5% below the bank’s previous estimates, the New York Times reported.
Retail investors simply got caught up in an over-hyped stock trading at 100x earnings and more than 25x sales.
And through it all, the “backdoor trades” Ian recommended in the run-up to the IPO have been doing just fine…
