Last Thursday, the Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act (aka Obamacare) and forever changed the landscape of the health-care sector. In the time leading up to that momentous decision and immediately following the ruling, we at The Motley Fool have hit every angle of how this could affect health-care stocks and your wallet.
In a further attempt to understand the reach of Obamacare, on Friday I proposed five stocks outside of the health-care sector that could see significant benefits from health-care reform. Today, I want to look at the other side of the coin and discuss five non-health-care companies that could see their businesses weaken directly as a result of Obamacare.
One of my main arguments Friday was that as Medicaid coverage expands and people are required by law to carry insurance, more of them will choose to get annual checkups and utilize the medical care available to them. In doing so, quite a few of these newly insured individuals will adopt healthier living habits. Today's batch of five surprise underperformers are companies I suspect will be negatively affected by that movement toward healthier living.
No one really "likes" the tobacco sector, but tobacco stocks provide investors with bountiful dividends and have a customer base that's nothing short of addicted to their products. As I've pointed out on numerous occasions, the Food and Drug Administration and the Centers for Disease Control and Prevention are waging war against tobacco companies through advertising campaigns, ingredient transparency requests, and warning label laws that could all negatively impact Altria, Reynolds American, and other U.S. tobacco companies.
However, nothing will be more damaging than Obamacare, which will give millions of people access to medical care that will include medications that will enable them to get off tobacco products. Altria and Reynolds have already warned of sizable layoffs in response to declining cigarette volumes, and Thursday's ruling has the potential to slowly erode a customer base that has been either flat or declining for decades.
I believe I just heard the collective groan of millions of college students across the U.S. I am by no means trying to lump energy drinks in with tobacco products in terms of health effects, but there are scientifically proven negative long-term effects on your cardiovascular system for those who regularly consume energy drinks, at least according to the University of Washington.
Unlike a tobacco addiction, where insurers would likely provide medical coverage to help a person kick their habit, no such coverage exists for energy drink addiction. And last I checked there's no such thing as an "energy drink intervention." Instead, this is a simple case where healthier eating habits derived from getting an annual checkup could kick in.
That could be bad news for Monster Beverage, which derives about 95% of its revenue from energy drinks and now commands 30% of the convenience and gas-station store energy drink market (just shy of Red Bull's market-leading 32% share). Coca-Cola could also share in the pain if energy drink consumption falls, but unlike Monster, it has a diversified line of carbonated and noncarbonated beverages to fall back on.
Whereas I proposed Whole Foods Market as a potential beneficiary to Obamacare as people make the choice to eat healthier, fast-food restaurants McDonald's and Burger King could, in turn, see sales slump unless they continue to drastically alter their menus and load them with more nutritious options.
McDonald's has actually made good strides in introducing salads and healthier wrap options to its menu. In fact, it's the golden standard (pun completely intended) on which fast-food restaurants have based their healthier options. Burger King, which is vastly behind the times and struggling mightily in the U.S., only recently introduced a wider variety of healthful food options to its menu that is, by all accounts, nearly a carbon copy of what McDonald's offers.
Although fast-food companies have received the hint to move toward offering healthier options, Obamacare may force them to pick up the pace or face nasty repercussions as people change their eating habits.
As you can tell from our continuing coverage on how Obamacare will affect your medical care, your investments and your bottom line, its reach goes far beyond the health-care sector. My advice would be to add these five companies to your free and personalized watchlist to track their progress leading up to, and after, the enacting of Obamacare in 2014.
- Add Altria to My Watchlist.
- Add Reynolds American to My Watchlist.
- Add Monster Beverage to My Watchlist.
- Add McDonald's to My Watchlist.
- Add Burger King to My Watchlist.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of Coca-Cola, McDonald's, and Whole Foods. Motley Fool newsletter services have recommended buying shares of Monster Beverage, Coca-Cola, McDonald's, and Whole Foods. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that never takes a sick day.