Godzilla-Sized Meals Could Lead to ‘Super-Sized’ Profits

By Keith Fitz-Gerald

Japanese companies and local governments must now measure the waistlines of all employees and family members over the age of 40.

According to this new health-care initiative – which started this week – men whose girth exceeds 33.5 inches and women whose waistlines exceed 35.5 inches are considered overweight.

The new guidelines affect nearly 56 million people, or roughly 44% of Japan’s total population. They’re based on studies done by the International Diabetes Foundation in 2005, which looked at size and weight thresholds and used them to identify health risks.

Individuals who fail to meet these standards won’t be penalized or have to pay up personally. But their employers will – in the form of penalty payments and higher health-care premiums for every additional inch – thanks to this new waistline law that’s aimed at slimming down this island superpower.

As reported on CNN, NEC Corp. alone faces $19 million in such penalties. Other companies find themselves in a similar spot and could potentially owe hundreds of millions of dollars in punitive health-care fines.

Naturally, the law is controversial, with many believing that it’s at the very least unnecessary – and perhaps even represents an intrusion on a person’s individual liberties. However, others think it’s a very timely initiative, as well as one that’s badly needed.

Either way, the Ministry of Health aims to achieve its goal of reducing the Japanese overweight population by 10% in the next four years and an enviable 25% during the next seven years. It also intends to dramatically reduce national health-care costs at the same time.

The reason?

“Big” people have never populated the nation – but the people are getting bigger.

Since World War II, the average Japanese citizen has gained between three and six inches in height, 20 pounds in weight and, evidently, a bit too much around the waist. While the root causes are subject to debate, much of it comes down to more advanced medicine, changes in lifestyle and, to be perfectly blunt, and the introduction of Western foods including – you guessed it – fast food.

For years in Japan’s company cafeterias – long the domain of harried salary men eating quickly in order to get back their desks – a typical Japanese meal consisted of fish, pickles, some rice, and perhaps green tea, a accounts for between 600 and 800 calories. But Western alternatives – a McDonald’s Corp. (MCD) hamburger meal, for example – can tip the scale at nearly 1,400 calories.

With change, however, comes opportunity.Companies that design, manufacture and sell comprehensive obesity-management programs – not just games, or such one-off items as pedometers, scales and the like -stand to make out big.

One such firm is Konami Corp. (ADR: KNM), which we twice rode to profits (once 49.91% and then 39.31%) earlier this year in our sister publication, The Money Map Report. While most people know Konami as a video-game maker, the company actually operates a string of health-care clubs and is at the center of Japan’s new “healthy” movement.

Showing some real forward thinking, Konami has been able to market some of its leading games, like Dance Dance Revolution, as physical-education programs and medical devices. And those products are now being adopted worldwide by frazzled physical education teachers who find themselves faced with unmotivated, overweight kids. The problem is particularly acute here in America, where as many as 17% of our children are now obese, according to various studies.

Not only do such games offer an alternative to traditional exercises, but they’re also approved medical devices. And that means that school systems can introduce them – and count on insurance companies footing some, or all, of the bill.

Nintendo Co. Ltd.’s (OTC ADR: NTDOY) Wii is taking the same approach. With its Wii Fit programs, the company appears ready to duke it out in what may well be a newly emerging class of entertainment – video-weight-management programs.

In China, where Yum! Brands Inc. (YUM) has more than 3,000 restaurants – and where its KFC outlets are the dining venue of choice for many middle class Chinese consumers – we expect a similar onset of obesity. In fact, during my most recent trip there, I observed bigger Chinese in general than I’ve ever seen before.

Weight management is clearly becoming an issue there, too. And mark my words: Obesity will be an ultra-sensitive topic for the Chinese, who have long regarded fatness as a sign of prosperity, wealth and good fortune.

But that neither diminishes its potential impact nor the opportunity when it comes to profiting from the fight against obesity.

While it’s too early to predict choices there, our best guess is that companies like online-game developer Perfect World Co. Ltd. (ADR: PWRD) will adapt the single-player concept to reflect the Chinese predisposition toward massive multiplayer online adaptations. As a result, it will introduce new games that haven’t even been contemplated, yet.

Source: Godzilla-Sized Meals Could Lead to ‘Super-Sized’ Profits

That’s why here at Money Morning we’re more interested incompanies that can secure a lot of smaller contracts on a consistent basis – and that can transform those deals into predictable, double-digit growth.

We refer to these modest-contract specialists as the “Masters of the Small Bid.”

Let me explain…

As we’ve stated, the companies we’re targeting aren’t characterized by headline-grabbing mega-contract wins, but by their proven ability to land smaller, more-stable deals. You see, by spreading their risk across many smaller deals rather than just swinging from the heels every time, the companies we follow are able to generate a consistent stream of earnings – despite a slowing economy, a wrenching credit-crisis and damaged investor confidence.

In short, our “masters” have kept themselves in front of paying customers at a time when other firms are simply worried about having customers.

Let’s look at several strong examples.

A Sample of Strong-Bid Masters

It’s no coincidence that our first example – defense-contractor and aerospace expert Lockheed Martin Corp. (LMT) – has been around for decades, and is a proven survivor. Remembered as the designer of the P-38 Lightning fighter of World War II fame – an aircraft so deadly that Nazi leaders ruefully dubbed the twin-boomed airplane “The Fork-Tailed Devil” – Lockheed Corp. went on to build the graceful Lockheed Constellation airliner in the 1950s and the cutting-edge F-117A Nighthawk Stealth Fighter in the 1980s.

A disastrous foray into commercial jetliners – in which only 250 airplanes were sold, even though the program lasted from 1968 until 1984 – would have likely bankrupted many companies. But Lockheed’s been a survivor. Indeed, back in the 1990s, to keep pace with a wave of defense-sector consolidations that created a smaller group of bigger players, Lockheed linked up with Martin Marietta Corp. to form Lockheed Martin.

Lockheed Martin re-established its fame with the so-called “Skunk Works” advanced-technology unit, and even today remains a defense-sector heavyweight. But it’s also a Master of the Small Bid. For proof, just look at some recent deals.

Lockheed roared into April, landing a $50 million contract for the U.S. Navy on April 1, and a $234 million Air Force contract on April 2. A week later, the company landed a deal a day for four straight days, in the process rolling up $725 million in total business from the U.S. Army, the Turkish military, and Japan’s Mitsubishi Heavy Industries Ltd.

The rest of the month saw still more action as the Navy signed on Lockheed for a one-year, $15.5-million contract for continued program management and engineering services for the United Kingdom’s Trident II D5 Fleet Ballistic Missile (FBM) program. The company closed the month in a decisive manner with two more major deals on April 30. The National Aeronautics and Space Administration (NASA) signed a $39.5 million contract modification with Lockheed Martin Space Systems to implement an employee-retention program, while the Navy supplied a contract boost worth up to $190 million to supply tooling and special test equipment for its new F-35 Joint Strike Fighter.

Not a bad month’s work. And it’s certainly representative of how Lockheed generates a predictable earnings stream. Because of deals such as these, the company’s share price rose nearly 8% in the month of April alone. In May we’ve been seeing even more deals, and the stock is advancing again.

Clearly, small deals can have a big impact on a company’s bottom line.

The Gamer That Doesn’t Play Games

At a time when other gamers are worrying about the next best thing, Japan-based Konami Corp. (ADR: KNM) retooled one of their most successful releases, Metal Gear Solid, adapted it for mobile phones, and then built up a lot of buzz as they pushed it out to customers of the Verizon Wireless unit of Verizon Communications Inc. (VZ).

Not only did Konami save a lot of money because it wasn’t developing a new platform from scratch, it also kept its audience smaller to produce bigger returns per person.

While the pumped-up adolescent males soak up this stealth shooter game, Konami hasn’t forgotten to take care of the over-moneyed and under-served teenage-girl market with its recent new game, “Diary Girl.” The Nintendo Co. Ltd. (OTC ADR: NTDOY) Nintendo DS game provides girls of all ages the ability to interact with friends, while also organizing a calendar and address book in their own, password-protected electronic journal.

A month ago, Konami announced an agreement with Win Systems International Holdings Inc., to use Konami content in certain of Win’s pending lottery and gaming projects in Europe and Latin America.

Deals like this have caused Konami’s shares to seek higher ground. With a 19% gain over the past three months, the only thing that could help this company even more is if it had a highly awaited Sony Corp. (ADR: SNE) PlayStation 3 game coming in the near future – which just happens to be the case. Metal Gear Solid 4, the highly awaited PlayStation 3 game, will debut June 12.

Watch this video.

Laura Cadden: Traders and investors have been turning a concerned eye towards Japan. Housing sales in the Land of the Rising Sun crashed in 2007 and despite a long overdue increase in GDP growth last year, many believe that the country, once again, is at the edge of, or already in, a recession. Japanese business confidence is plummeting amid fears that the rising Yen will damage its crucial exports trade. The Nikkei has experienced its worst drop since 2001. Is it time for investors and traders to move their assets out of Japan? I’ve invited Martin Hutchinson of The Money Map Report to provide some insight.

So Martin, reading your analyses of late, you’re actually quite bullish on Japan.

Martin Hutchinson: Yes, I think the drop that we’ve had in the Japanese share market is because Japanese traders look at the world very differently to American traders. For example, when we had all the trouble last August the American markets went up seven or eight percent afterwards. It was crazy. You had sub-prime mortgages disappearing everywhere and the markets going up. Whereas Japan seems to have assumed that the American sub-prime mortgage industry is a big problem for Japan and therefore, their market’s down about 30%. I mean they’re everything in Japan because they’ve had such a lousy 15 years. Everything in Japan looks like a problem, everything in the U.S. looks like a bonanza. It’s madness. So you have to take that into account when you’re investing.

Laura Cadden: But yet, you feel that the economy is not in such dire straits?

Martin Hutchinson: Their growth rate’s a good deal better than the U.S. one. They’re running at about three-and-a-half percent at the moment and of course, they’ve got no population growth so that is a real three-and-a-half percent. The U.S has 0.6% growth in the last quarter and 1% population growth. In my book, that’s a recession. It’s minus .4% after population growth. So the Japanese are really pretty solid. The housing thing last year – it was a very nasty crash – but basically what they did was they changed the way of getting permission to build new houses and it took everybody about six months to work out how the new system worked. It was a god-awful bureaucratic mess. And so of course, meanwhile, no houses were constructed. But that wasn’t a real economic downturn, that was just bureaucracy gone mad.

Tired of reading? Watch the video.

Laura Cadden: Let’s discuss what the impact will be if there is a U.S. recession. A great part of Japan’s demand comes from U.S. consumers, correct?

Martin Hutchinson: Well, yes, but less than there used to be. China and Asia as whole is now a big part of their export market. Probably a more important problem for them is the Yen having zoomed up. It’s gone from 120 to the dollar to a peak somewhere in the high 90s. It could even go higher, I think. And that obviously makes it more difficult for them to export. But equally, because Japanese consumers haven’t spent so much as Americans, there’s a huge domestic market there that can absorb quite a lot of the growth. So you may want to look at companies that are involved in domestic Japanese business rather than purely its exports.

Laura Cadden: Now do you think that their economy is actually going to see an upswing any time soon?

Martin Hutchinson: Well, I think their economy’s going to continue growing pretty nicely and I think their stock market will eventually come out of its current funk and realize that however bad the problems are in the U.S., Japan’s on a different cycle. There isn’t a housing crash in Japan because they had one 15 years ago. And I think there’s every chance that the Japanese market may go down when everybody else goes down because traders are feeling suicidal for a month or two but when there’s some kind of recovery in the West, Japan will lead it and will give a much bigger upsurge.

Laura Cadden: Do you think it’s time for investors and traders to move in and snatch up bargains?

Martin Hutchinson: Yes, I think it’s a pretty good time. You can satisfy yourself with the idea that the market is now at about one-third of its level in 1990 and 1990 is a long time ago. And it’s down about 30% from its peak. I think you could easily find some bargains now in Japan.

Laura Cadden: What are you suggesting your readers look into?

Martin Hutchinson: I think there are three things that you can do. One is look at domestic Japanese companies. And the way you buy those is through the Japan Smaller Companies ETF (JSC:AMEX) and that’s basically looking at the smaller companies that are dealing the domestic market. They’re less effected by the Yen going crazy or the U.S. having a recession.

And then for the second one, I think there’s some very interesting technology companies in Japan, some of which are very well-known. But one that I’m very fond of, because it’s quite cheap at about 11 times earnings, is an outfit called Omron (OMRNY:OTC). This company is the world-leader in fuzzy logic control systems. And fuzzy logic is a sort of wonderful alternative mathematics that basically enables you to have more efficient vacuum cleaners and cement plants and things like that. They didn’t have Descartes and Aristotle in Japan and so they understand fuzzy logic in a way that don’t. And so here you’ve got this company that’s a world-leader in this bizarre alternative technology and it makes very nice money and it’s quite cheap.

And then the third thing, if you really want to be fashionable, is to go for Konami (KNM:NYSE) and that’s the video game producer. It’s about to come out with Metal Gear Solid IV in two months and my expert, whose near 16 years this month, tells me that Konami’s the best company in the business and frankly, with the sales of the Sony Playstation and the Nintendo Wii, and even the X-Box, all booming in the last year or so, you want to be in the guys that make the video titles for them and that’s Konami.