2 stocks to buy & 3 shorts as GLP-1s approach a new frontier

At the 2023 Livewire Live event, we made a bold, perhaps audacious, prediction: 2024 would mark the beginning of the end for obesity. 

Normally, I prefer to keep my forecasts private until reality validates them, but the Livewire Shocking Predictions segment left no room for hedging. Amazingly, it seems that this prediction is coming to fruition. 

For the first time in over 50 years, obesity rates in the U.S. have reached an inflection point and are trending downward. 

The catalyst? The revolutionary GLP-1 class of drugs, poised to become the best-selling pharmaceuticals of all time by 2030, with an estimated $150 billion in annual sales.

The GLP-1 drugs, initially developed by Novo Nordisk (Ozempic) and later joined by Eli Lilly (Mounjaro), have demonstrated efficacy across a range of conditions - from obesity and diabetes to heart disease, Alzheimer’s, and arthritis. Dubbed the “Swiss Army knives” of modern medicine, these drugs are transforming healthcare.

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Could GLP-1s treat other issues?

A groundbreaking study published in the journal Addiction sheds new light on the potential of GLP-1s to combat substance abuse. 

This study analysed data from 800,000 individuals with alcohol use disorder and 500,000 with opioid addiction, revealing striking results. 

Those taking Ozempic had a 50% lower likelihood of becoming intoxicated and a 40% lower chance of overdosing on opioids compared to individuals not on the drug. Given that alcoholism costs the U.S. over $250 billion annually and opioid abuse an astonishing $1.5 trillion, the implications are staggering.

Researchers believe GLP-1s may curb addictive tendencies by dampening the dopamine response triggered by substances like alcohol and cocaine. 

Anecdotal reports suggest that these drugs could also moderate other compulsive behaviours such as gambling. 

Additionally, GLP-1s appear to not only influence how much people eat but also what they eat.

Users report gravitating toward healthier options like fruits, vegetables, fish, and lean meats while consuming less dopamine-triggering fare such as chocolate, cookies, and ice cream.

The investment implications

From an investment perspective, Novo Nordisk and Eli Lilly have been extraordinary performers, with returns of +324% and +597% over the past five years, respectively.

The growing body of evidence supporting GLP-1s’ efficacy in treating addiction only bolsters the bull case for these companies. As market leaders, they are well-positioned to dominate this burgeoning sector for years to come.

At Plato, we recognize the transformative potential of GLP-1s and hold positions in both Novo Nordisk and Eli Lilly. The future of these companies, and the lives they aim to improve, has never looked brighter.

But for some investors, the success of GLP-1s might not be good news.

If the anticipated impact on compulsive behaviours materialises in the coming years, it could create headwinds for gambling companies like Tabcorp Holdings (ASX: TAH), SkyCity Entertainment Group (ASX: SKC) (we currently short both of these companies in the Plato Global Alpha Fund), and Aristocrat Leisure (ASX: ALL).

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The fund is accessible on the ASX via the Plato Global Alpha Fund Complex ETF (ASX:PGA1).

Click to learn more about the Fund and its performance on the Plato Investment Management website.