The Thriving 'Silent Killer'
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
According to the American Diabetes Association (ADA), over 33% of people in America either have diabetes, or have 'pre-diabetes.' As a Type 1 diabetic myself, I wanted investment information on some of the companies I use, or have used, to monitor/control the disease. Diabetes is commonly referred to as the 'silent killer,' but it doesn't need to kill the financial success of your family.
Any diabetic that uses an insulin pump has heard of Minimed. Minimed is a division of Medtronic (NYSE: MDT) and serves as the clear insulin pump market leader. Diabetics are 2-4 times more likely to die of heart disease than those without diabetes. Minimed's insulin pumps help control glucose levels more steadily, which in turn decrease the side effects of the disease.
Diabetes directly accounts for nearly 10% of Medtronics' revenues, which have remained level in the past year. If side effects of the disease are counted, nearly 40% of Medtronics revenues are accounted for by diabetes. Medtronic's Free Cash Flow (FCF) increased approximately 24%, which led to a solid 11.25% FCF yield. Medtronic's stock responded well last year, increasing approximately 13%.
Generally speaking, all type 1 diabetics use insulin, and that figure is growing among type 2 diabetics as well. Founded in 1876, Eli Lilly (NYSE: LLY) is now the tenth largest pharmaceutical company in the world, and the primary insulin manufacturer. With revenues increasing approximately 5% last year, their share holders experienced over 32% growth in the stock. Though Lilly's FCF decreased in 2012, its FCF yield is still 11%, just under performing Medtronic's.
Novo Nordisk (NYSE: NVO) is another insulin manufacturer that is a major player in diabetes. Producing insulin seems to be a good route for companies right now as this stock soared in 2012, increasing nearly 48%. While its FCF levels increased by 14%, its FCF yield is actually less than Lilly or Medtronic, showing 5.6%. Looking at the 9% increase in revenues through 2012, and more than that the past few years, Nordisk is still not a company to frown upon.
Now, any diabetic, doctor, or researcher will tell you that checking glucose levels is the best way to control the disease. After all, if a diabetic doesn't know what their levels are, how do they make an informed decision on how much or little insulin to administer? Three of the four major test strip companies are publicly traded, or owned by a company that is.
Lifescan manufactures billions of test strips every year and is owned by Johnson and Johnson (NYSE: JNJ). With a 1.5% increase in revenues, and over 40% of its revenue accounted for through medical devices/diagnostics, diabetes is again playing a major role in a company's success. Though Johnson and Johnson's stock price increased nearly 11%, it still shows a 17.6% FCF yield.
Abbott (NYSE: ABT) is another test strip manufacturer that, at first glance, seems to be struggling. Their revenues remained level in 2012, yet their stock plummeted over 40%. FCF decreased approximately 3%, though capital expenditures increased to the tune of 47%. Maybe Abbott is simply concerned with future growth, and not immediate success. With just over a 7% FCF yield, it doesn't appear to be in a horrible position. The graph below shows how excellent these companies stocks have done, with the exception of Abbott.
Why These Companies Show Promise...
Diabetes is the leading cause of blindness, kidney failure, and accounts for more than 60% of all non traumatic lower limb amputations. The costs of diabetes are approximately $200 billion dollars every year, which seems to lead to great success for companies involved with the disease. One reason I believe these companies will continue to perform is because of the growing rates of obesity in America and internationally. Obesity is often followed by diabetes. With remarkable numbers for most of these companies, it seems as though diabetics have a brighter future than it appears.
The Bottom Line...
By investing in these companies, diabetics might be able to supplement the money they spend on supplies, devices, and medical costs without working an extra job. Regardless of whether an investor has acquired diabetes, all of these companies are worth looking into. Though a bit more expensive, growth investors might do some further research on Abbott and Nordisk. But investors looking for a bargain might find Johnson and Johnson, Medtronic, and Lilly more appealing.
tlwofford has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson and Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!