The Investment Case Against Sugar

Sugary drinks are not only bad for your health, they may also be bad for your investment portfolio. CLSA analyst Brian Doyle recently spoke with endocrinology and obesity expert Dr. Robert Lustig about the food industry’s long-term impact on the health of consumers. Dr. Lustig, who is a professor at UC San Francisco, told CLSA that processed foods and added sugar are “far more of a health risk than obesity per se.”

“While we lack the expertise to adjudicate the science, we do believe the imposition of taxes does pose a risk to our covered soft drink companies,” Doyle concluded.

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Back in 2009, 33 states imposed a specific sales tax on soft drinks. President Obama even explored the possibility of instituting an excise tax on sweetened beverages as part of his health care reform initiative, but the plan was abandoned after heavy push-back from the beverage industry.

Doyle sees real investment risk associated with future national health policy. A federal tax or further regulation of the industry could be a major headwind for The Coca-Cola Co (NYSE: KO), PepsiCo, Inc. (NYSE: PEP), Dr Pepper Snapple Group Inc. (NYSE: DPS), Coca-Cola Enterprises Inc (NYSE: CCE) and Monster Beverage Corporation (NASDAQ: MNST).

CLSA maintains a Buy rating on Monster and Outperform ratings on Pepsi, Dr Pepper Snapple and Coca-Cola Enterprises.

The firm has an Underperform rating on Coca-Cola.

Disclosure: The author holds no position in the stocks mentioned.