The direct marketing industry has been in the spotlight over the past year mainly because of the battle between Carl Icahn and Bill Ackman over the future prospects of Herbalife (NYSE:HLF). Bill Ackman is well-documented as being on the short side while Carl Icahn remains firmly behind the company. Thus far, Carl Icahn has been a clear winner. Several companies in this industry, including Herbalife, are demonstrating that strong earnings are what’s important. Three health-focused direct marketing companies that investors may want to consider are Herbalife, ForeverGreen Worldwide Corporation (FVRG.PK), and USANA Health Sciences (NYSE:USNA).
Herbalife is a global nutrition and weight management company. The company’s products are sold exclusively by almost 2.3 million independent distributors around the world. The company’s product focus is on nutrition, weight management, and personal care. Based on the company’s third quarter earnings report, Herbalife generates roughly 64 percent of its revenue from its weight management products. About 23 percent of the company’s sales came from targeted nutrition products.
Fundamentally speaking, Herbalife has demonstrated strong growth over the past 3 years. Here is a look at the company’s net sales and net income since 2010.
- December 31, 2010: $2.73 billion in sales and $292.88 million net income
- December 31, 2011: $3.45 billion in sales and $414.96 million net income
- December 31, 2012: $4.07 billion in sales and $463.96 million net income
As investors can see, the sales and net income growth have been impressive and consistent. This strong fundamental performance has resulted in a 42 percent rise in Herbalife’s share price over the past 52 weeks. The recent sell-off because of a possible Senate inquiry into Herbalife represents an excellent opportunity for investors to acquire shares. Carl Icahn has gone on the record as saying that he hasn’t sold a single share.
A second health focused direct marketing company that investors should strongly consider is ForeverGreen Worldwide Corporation. ForeverGreen Worldwide Corporation develops, manufactures, and distributes an expansive line of all natural whole foods and products around the world. The company has built a diversified lineup of products including whole-food beverages, hemp-based whole-food products, immune support, weight management products, essential oils, and even chocolate. Shareholders can also look forward to the full, commercial launch of the company’s newest product, PowerStrips, during the first-quarter this year.
Investors might be wondering what makes ForeverGreen’s products so special. In addition to using the finest ingredients in the world, the company prides itself on its manufacturing process. The company owns a state of the art manufacturing facilities that has three primary goals:
- Test each individual ingredient to make sure it is what it says it is.
- Verify that each ingredient is free of contaminants.
- Ensure that each ingredient and product contains the proper potency.
ForeverGreen has demonstrated extremely strong revenue and net income growth during the past four quarters. For the quarter ended December 31, 2012, the company generated $2.79 million in sales and came in with a net loss of $517,000. For the first-quarter of 2013, sales came in at $2.69 million, but with an improved net loss of only $211,000. During the second-quarter of 2013, ForeverGreen sold $4.0 million worth of products and broke even for the quarter. The last quarter was where everything finally came together. The company generated its highest net revenue of $4.79 million and generated a profit of $327,000.
Based on the 2013 quarter-over-quarter sales growth, investors should anticipate 2013 revenue to come in at approximately $17.5 million. With the plans to commercially launch its newest product, PowerStrips, during the current quarter, investors should anticipate the company generating at least $36 million in 2014.
PowerStrips combine a proprietary blend of ancient herbs, minerals and elements into a patented and proprietary product that is applied topically. Once applied, the technology uses muscle and tissue to activate and boost energy simultaneously in areas of pain and discomfort and at a cellular level, bringing rejuvenation to the body. In 2013, during the pre-launch phase, the company generated $12 million in PowerStrip sales. Once the product is available to everyone, PowerStrip sales are likely to go through the roof. Once that happens, today’s share price is likely to be a thing of the past.
Speaking of the share price, investors have enjoyed a more than 2100 percent return over the past 52 weeks. While a 2100 percent likely won’t occur in 2014, investors do have the opportunity to get in the ground floor of a fast growing, innovative, and unique health focused direct marketing company.
A third company in this space that investors may want to take a look at is USANA Health Sciences. USANA Health Sciences is one of the world’s leading companies in the field of health and nutrition. The company develops and manufactures high-quality nutritional supplements, healthy weight-management products, and self-preserving personal-care products. Like Herbalife and ForeverGreen Worldwide, USANA Health Sciences has a diversified product lineup consisting of nutritionals, beverages and foods that assist with one’s diet and energy, and personal care products capable of turning back father time.
Although smaller than Herbalife, USANA has still demonstrated strong and consistent revenue growth. For the year ended 2010, the company generated $517.6 million in revenue. In 2011, USANA grew its total revenue to $581.9 million. And in 2012, the revenue came in at an impressive $648.7 million. The company was able to consistently generate profits as well with 2012 net income coming in at $66.4 million. Investors who have held through the ups and downs of the past year have enjoyed a total return of 57 percent. That is certainly better than the overall stock market and speaks to the strength of the health-focused direct marketing business.
All three companies in this article — Herbalife, ForeverGreen Worldwide, and USANA Health Sciences — are capable of strong growth in the future that will likely result in investors generating significant alpha and outsized returns compared to the overall marketplace.
Matt Levy is a research analyst with Onyx Research Associates based out of Charlotte, North Carolina. Matt spends most of his time researching micro-cap and small-cap equities that are severely undervalued by the market. After a careful look at both fundamentals and industrial changes, Matt is able to uncover promising investment opportunities.