Why Coke, others, may be spared, as a $100 billion opportunity in weight loss drugs unfolds says JPMorgan

All that is largely thanks to love for tech biggies like Apple and Tesla, as savvy investors picked up on their importance. And who wouldn’t want to hop on the next big theme and be sitting on big gains in a decade or two.

That brings us to our call of the day, from JPMorgan, which is flagging a “$100 billion plus opportunity” from emerging weight-loss drugs, or GLP-1s — glucagon-like peptide-1 gut hormones that can help control blood sugar levels and lower appetites.

“We forecast U.S. sales for the GLP-1 category to exceed $100 billion in annual sales over time, split roughly 50/50 in diabetes and obesity. Our global market estimate is [more than] $140 billion by 2032,” said a team led by analyst Nicholas Rosato, whose estimates crush the $77 billion in sales by 2030 predicted by Morgan Stanley this summer.

His team is bullish on U.S. and Europe picks Eli Lilly
LLY,
-1.37%
and Novo Nordisk
NVO,
+0.86%
NOVO.B,
-0.84%,
and they see plenty of upside earnings surprises ahead for that pair. Note, the WSJ points out that Novo Nordisk, Europe’s most valuable company, is vulnerable to selling in Europe at times as Danish fund managers can’t hold more than 10% of the drugmaker.

Laying out other beneficiaries, they tamp down worries over medtech device makers — they are bullish views on Insulet
PODD,
+1.57%,
Dexcom
DXCM,
+0.06%
and Inspire Medical
INSP,
-4.13%
and Gerresheimer
GXI,
+1.12%.

In life sciences, they like Thermo Fisher
TMO,
-0.55%,
Catalent
CTLT,
+0.14%
and Avantor
AVTR,
+0.10%,
which makes process ingredients used in those diabetes/weight loss drugs, and see incremental gains seen for Danaher
DHR,
-0.86%,
Repligen
RGEN,
-1.51%
and Agilent
A,
+0.10%.

JPMorgan analysts then address the hot-button topic — how those drugs will cut into the American love for snack foods and drinks.

Also read: The dark side of the weight-loss-drug craze: eating disorders, medication shortages, dangerous knockoffs

Walmart
WMT,
+1.42%
CEO John Furner sent shares of Coca-Cola
KO,
-0.90%
and PepsiCo
PEP,
+0.05%
tumbling a few weeks ago after he blamed GLP-drugs for lower spending on groceries and high-calorie snacks. (Coke lifted guidance as it reported forecast-beating results on Tuesday and shares are up) Morgan Stanley has been among Wall Street banks flagging this likely fallout.

Echoing this, JP Morgan analysts say the impact is “real and potentially not small,” and share a survey showing GLP-1 users prefer meat, produce and dairy to snacks, sugary drinks and high carb items. Some caveats here, just under 500 people were surveyed and they say it’s hard to tell if those category shifts will persist, they say:

To this effect, Rosato and the team are bullish on protein drink maker BellRing
BRBR,
+0.35%
and natural and organic grocery chain Sprouts Farmers Market
SFM,
+0.40%
(neutral rated). They are also bullish on Coca-Cola, which they see as “relatively more insulated” from GLP-1 fallout as around 80% of its volumes are international and 19 out of its 20 top drinks offer sugar free alternatives. They also like Keurig Dr Pepper
KDP,
-1.12%,
as it’s less exposed to sugary drinks.

What else? Within U.S. food delivery they are prefer the more global player Uber
UBER,
+0.19%
to DoorDash
DASH,
+2.38%
and Instacart
CART,
-0.93%
for its potential from secular growth of online grocery delivery.

Read: Equity strategist who called stock rally in first half says S&P 500 won’t resume climb until spring 2024

The markets

Stock futures
ES00,
+0.58%

YM00,
+0.51%

NQ00,
+0.60%
are higher as bond yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
steady, following Monday’s dramatic 5% run for the 10-year note. Oil prices
CL.1,
+0.22%
are flat, and bitcoin
BTCUSD,
+9.37%
is climbing after reaching a nearly 18-month high on Monday over optimism that an ETF based on the crypto will soon be approved in the U.S.

The buzz

Earnings are rolling out from big names on Tuesday — GE
GE,
+0.58%
lifted guidance and the stock is climbing, 3M
MMM,
-1.10%
is up on a higher outlook and profit beat and General Motors
GM,
-1.48%
reported blowout earnings and shares are up. Xerox
XRX,
-1.89%
is up after swinging to a profit.

Alphabet
GOOGL,
+0.66%
(see preview), Microsoft
MSFT,
+0.81%
(see preview), Visa
V,
-0.79%
and Texas Instruments
TXN,
-1.01%
are due after the market close.

Read: Big-tech results will decide ‘where we go from here’ amid investor caution. They would fall if it weren’t for this one company

The S&P flash U.S. manufacturing and services purchasing managers indexes are due at 9:45 a.m.

Global demand for fossil fuels will peak before the end of the decade, as geopolitics hasten the move to renewable energy, says the International Energy Agency.

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