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With all the buying, eating, and drinking we do during the holidays, it's hard for retail companies not to turn a profit during America's national season of spending money. But one company is there after all the feasts and celebratory drinks are over. As we soberly look back on our straight month or more of overindulgence, one company is patiently waiting for us to make that most popular New Year's resolution, the one many of us make and fail to keep every year. That company is Weight Watchers International (NYSE: WTW  ) .

What's the skinny?
Weight Watchers is the nation's preeminent weight-loss program, with a history and brand recognition no competitor can match. Members attend support-group-like meetings to learn about proper nutrition, track their lifestyle online, or both. The company's emphasis on losing weight slowly and healthfully through learning better eating and activity habits, as well as its positive, upbeat approach to weight loss, helps its customers not only lose weight more effectively, but also keep the weight off, a perennial problem for dieters.

Weight Watchers currently boasts about 1.3 million members attending its weekly meetings and around 1.5 million online subscribers. With more than 1.5 billion overweight and 500 million obese adults worldwide, Weight Watchers' addressable market is vast. The company runs a very capital-light business model with few fixed costs, and as a result has maintained a gross margin above 50% for more than a decade, enduring through many fad diets.

Weight Watchers' competitive moat is partly composed of its extensive network of meeting spaces and leaders, its proprietary online platform, and its superstar roster of celebrity spokespeople like singer Jennifer Hudson. More than any of that, however, the company stands out due to the trustworthiness of its product and the value of its brand.

Weight Watchers has earned its brand power through a scientific weight management program, which was most recently found to be more effective than doctors' advice alone. Weight Watchers' disciplined approach to weight loss has won some serious and respectable accolades, including from the esteemed Cleveland Clinic. That hospital's health plan for its own employees includes a subsidized Weight Watchers membership.

I've owned Weight Watchers in the past, but decided it was getting a little overweight in my portfolio when shares jumped 130% in just the first five months of 2011. Since then, however, the stock has slipped more than a third, partly due to concerns over Arena Pharmaceuticals' (NASDAQ: ARNA  ) development of weight-loss drug lorcaserin. While investors should watch how lorcaserin fares in the market, I don't see it as a threat. Instead, all I see are opportunities.

Health is fashionable
Weight Watchers has always sold a healthy
lifestyle, as opposed to a crash diet. Members aren't expected to starve themselves for a few weeks or months; they're taught how to permanently change the way they approach eating and exercise. Competitors like Nutrisystem (NASDAQ: NTRI  ) rely on selling prepackaged, processed "diet foods" to consumers, but to some consumers, "processed" is a dirty word. Weight Watchers is much more in tune with the holistic, balanced approach toward food that is feeding the "whole foods" and organic foods movement that has driven market-beating returns at Whole Foods Market and Hain Celestial.

In keeping with this trend, Weight Watchers has been able to reach into new markets. The company's online platform has been growing quickly as members uninterested in traditional meeting structures find they can fit the program into their own lives easily. Men, in particular, have been an important growth market, as they represent a small portion of Weight Watchers members  yet are about as likely as women to be obese . The company's recruitment of athletes like Dan Marino and Charles Barkley aims to overcome the sense that keeping a healthy weight is somehow not masculine , and if the company is able to attract men at even half the same rate as women, the growth runway ahead of it is impressive.

What's up, Doc?
Even more interesting than the company's efforts at attracting new types of consumers is its success in attracting institutions. More than ever,
insurance companies and health care providers are realizing that heavier patients cost them money. Already, major benefit providers like UnitedHealth Group (NYSE: UNH  )  and WellPoint (NYSE: ANTM  ) offer plans including subsidized Weight Watchers subscriptions. In the wake of the passage and Supreme Court affirmation of the Affordable Care Act, insurers and employers will be forced to cover millions more people, and that means the health care industry will be looking for savings anywhere it can. Weight Watchers' program is proven to reduce obesity-related illness, and as such I expect more and more institutions will turn to the program to keep their employees and policyholders in shape. Weight Watchers won't be just a consumer discretionary item in the future, it will play a vital part in the growing health care market.

Magic pill?
The biggest problem with losing weight the Weight Watchers way, of course, is that it requires willpower and patience. What about that miracle drug out of Arena Pharmaceuticals? Lorcaserin is the first weight-loss drug to gain FDA approval in over a decade, and if losing weight were as easy as taking a pill, Weight Watchers' business model would collapse.

I'm not worried. For one, lorcaserin has yet to reach mass adoption, and a lot of doctors and patients will be skeptical. Second, lorcaserin isn't billed as a silver bullet; it's meant to be used in conjunction with a healthy diet and exercise. That means that Arena and Weight Watchers shouldn't be seen as competitors, but as two complementary approaches to losing weight.

There are lots of ways to play the global obesity epidemic, and investors don't have to choose between Weight Watchers and Arena. In our brand-new premium research report on Arena Pharmaceuticals, we walk investors through the must-know opportunities and threats facing the company. Since key news can develop quickly, we're also including a full year of updates for those who sign up. Click here now to learn more.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 25, 2012, at 1:11 AM, greenb95 wrote:

    Losing weight may be as easy as taking a pill or going under the knife, but it is keeping it off that really matters. Just ask the people who've used speed or had weight loss surgery, then gained back all the weight they lost, plus more (along with additional health problems) after a few years. A food plan and support for continuing that food plan is the only way to go, yet members of Weight Watchers often stop attending meetings once they reach their goal weight, gain the weight back, and are too embarrassed to return. One weight loss alternative this article neglects to mention is free: time-proven health enhancing 12-Step programs like FA and OA, which "work if you work it". Their support group type meetings are based on one person who has had success helping another succeed. No one is making any money, but hey, maybe unhealthy eating is a problem that, over the long term, will never be solved by better pharmaceuticals or for-profit companies.

    Disclosure: I dropped 40 pounds in FA and have maintained my normal weight for 4 years. Other than putting in a couple bucks when they "pass the basket to pay for room rent", their information and support hasn't cost me a penny. Can WTW or NTRI compete with that?

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