Word From Wall Street: ‘V’ is for Victory

By Adam Ismail | May 3, 2010

Nutrition companies remain relatively resilient in the face of a financially challenging market.

The world’s stock markets have been in a full-scale ‘V’ shaped recovery since the bottom of the financial crisis. In fact, at the time of this writing most markets were within a few percentage points of their September 2008 levels, just before the markets crashed.
Shortly after the crash, this column examined how leading nutrition industry stocks fared compared to the rest of the market, so it is worth examining how they have performed since the markets have recovered.
Post crash we looked at NBTY, Hansen Natural, Hain Celestial, NuSkin, Herbalife, Usana Health Sciences, Martek Biosciences and United Natural Foods.

From peak to trough, the S&P 500 market index fell almost 50%. Just after the crash in September 2008 we found that the leading publicly-traded nutrition companies actually fared better than the overall equity markets. Even though natural products are considered a growth industry, the market had generally viewed them as less volatile than the rest of the market. Things looked good for the public stocks in our industry as the market continued to fall.

Fast-forward to March 2009—the stock market bottomed out and made an abrupt turn upward. Most stocks in the natural products industry followed a similar path, generally bottoming out within a week of the S&P 500. However, the shares of one company, Hansen Natural, never followed the rest of the market. Its shares declined briefly when the overall market crashed, but since October 2008 its shares have been on a rapid growth path, ending up 60% higher than just before the crash…and second best of all the companies we tracked.

Notably, however, all but two of these companies bottomed out with worse losses than the rest of the market. This is interesting because most of the sales data coming out throughout the financial crisis showed that the nutrition industry was continuing to grow as consumers started taking greater control of their own health. So even though sales were moving along and the market treated our industry as less volatile than the overall market, it generally punished our shares more than the other categories.

As of March 31, 2010, the S&P hovered just under its September 2008 levels, recovering nearly all of its lost value. Nutrition stocks have continued to follow the general path of the market, but in most cases have done far better than the S&P 500. In fact, every one of the six companies that beat the market did so by at least double-digit percentages better.
So what drove all of this? Earnings played an important role. The average earnings of the S&P 500 companies were up by a factor of 1.67x from their losses at the bottom of the market. The general trend of the companies we tracked was that those whose earnings grew faster than the S&P outperformed it. The few exceptions, like United Natural Foods and Herbalife, actually never saw a decline in earnings throughout the crisis, and in fact, continued to grow.
Since stock prices reflect future expectations of earnings. These outperforming companies continue to have high expectations placed on them…so hopefully the markets won’t turn south again!

Adam Ismail is the executive director of the Global Organization for EPA and DHA Omega-3s (GOED), Salt Lake City, UT. He previously worked in business development, mergers and acquisitions, and business strategy at Cargill Health & Food Technologies, Health Strategy Consulting and Health Business Partners. He can be reached at    

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