Novo Nordisk’s (NYSE:NVO) Ozempic diabetes treatment, marketed as a weight loss treatment under the Wegovy brand name, has become the latest mega-blockbuster drug. Yet, while you may be thinking about ways to capitalize on its popularity and the rise of other glucagon-like peptide-1 (GLP-1) weight loss treatments, you should also consider the stocks to sell because of this trend.
Eli Lilly (NYSE:LLY) may be poised to give Novo Nordisk a run for its money, with its similar offering Mounjaro, marketed to treat weight loss under the Zepbound brand name. However, other big pharma firms are struggling with their own efforts to bring a weight loss drug to market.
Last year, food and beverage stocks sold off on fears that the rise of GLP-1 drugs would affect their businesses. Since then, investors have realized that may have been an overreaction. That said, clear-cut evidence shows this trend is affecting demand for diet and weight loss food products.
With this in mind, let’s take a look at the top three stocks to sell due to Ozempic’s market disruption.
Medifast (MED)
When it comes to stocks most negatively affected by this trend, Medifast (NYSE:MED) may be the name that first comes to mind. This purveyor of weight loss and weight management food products has experienced a strong drop in sales and profitability since 2022 due to the rising popularity of GLP-1 drugs.
Not surprisingly, this has resulted in a steep decline in the price of MED stock. Shares tumbled as this trend began to take shape and have continued to steadily slide down to new lows with little end in sight. The latest big sell-off for MED happened earlier this month, following an analyst downgrade from DA Davidson’s Linda Bolton Weiser.
Weiser cut her rating on MED from Neutral to Underperform, as well as lowered her price target from $25 to $17.50 per share. In the downgrade, the sell-sider cited the prospect of Medifast needing to increase its marketing budget to counter this competition, which will likely intensify as GLP-1 weight loss drug ads hit the airwaves starting next month. As Medifast faces an uphill battle against current trends, expect MED to remain a “falling knife” and one of the top stocks to sell.
Pfizer (PFE)
Big pharma companies are looking to emulate Novo Nordisk’s success, with their own GLP-1 offerings. Pfizer (NYSE:PFE) is no exception. Yet, while some competitors are making big progress rolling out Ozempic competitors, this pharma firm, still working to get over its post-Covid growth hangover, is struggling in its quest to bring a weight loss drug to market.
So far, not one, but two of Pfizer’s anti-obesity drug candidates have been scrapped during the clinical trial phase. Pfizer has not given up just yet. At least, based on the company’s latest gambit to finally add a viable weight loss drug to its portfolio. However, with Pfizer stuck behind the eight ball as competitors corner the market, the end result may be far less significant than expected.
Barring unforeseen progress with developing a weight loss drug, or perhaps even news of Pfizer gaining a candidate for this market via acquisition, expect PFE stock to remain a “value trap,” as it’s been since the start of the post-pandemic era. While cheap at 12 times forward earnings and a high yield with dividends totaling 6% annually, a lack of growth will likely make PFE cheaper, further declines will outweigh the stock’s large, steady payouts.
WW International (WW)
WW International (NASDAQ:WW) is the parent company of WeightWatchers, one of the original weight loss companies. WeightWatchers as a business peaked in popularity eons ago. However, the rise of Ozempic and other GLP-1 drugs now makes its shares one of the top stocks to sell.
During 2023, WW’s sales dropped 14.5%. Adjusted operating income fell by 41.3%. Since last December, the situation has worsened. WW’s attempt to spin the rise of GLP-1s as a positive for the company failed to convince investors. In February, longtime spokesperson and board member Oprah Winfrey made a full exit from the company.
Sell-side forecasts call for WW to experience a rebound in sales and earnings, perhaps due to possible success with WW’s new WeightWatchers Clinic telehealth venture. Still, many in the market have become concerned that WW International’s high debt load leaves it at risk of eventual bankruptcy. Management has tried to assuage bankruptcy concerns, but GLP-1s keep destroying WW’s legacy business, and the telehealth segment fails to pick up the slack. Who knows? Ozempic and similar drugs could prove to be the final nail in the coffin for WW stock.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.