The Atkins Guide To Stock Picking

Lisa DiCarlo, 01.20.04, 12:27 PM ET

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NEW YORK - In November, the National Bread Leadership Council held its first-ever Bread Summit to address what it called a "crisis of misinformation" regarding carbohydrate consumption. Wall Street says this "crisis" is creating fat opportunities for companies pushing low-carb foods.

A December study by Morgan Stanley (nyse: MWD - news - people ) found that nearly one in five U.S. adults had tried a low-carb diet in the past year, with another 8% interested in trying one. "New Year's resolutions could lead to more people trying low-carb diets," wrote Morgan Stanley's William Pecoriello in a research note today.

That's good news for companies like Sara Lee (nyse: SLE - news - people ), which has introduced reduced-carb bread; Unilever (nyse: UL - news - people ), with an entire line of low-carbs foods; Frito-Lay, a unit of PepsiCo (nyse: PEP - news - people ), which will launch its first low-carb snacks this spring; and Anheuser-Busch (nyse: BUD - news - people ), which pioneered low-carb beer with the introduction of Michelob Ultra in the fall of 2002. In just the past month, Burger King has introduced no-bun burgers, and the Subway sandwich chain has introduced a joint marketing promotion with the Atkins Diet Center to promote low-carb wraps.

"Companies have no choice but to respond to the low-carb movement with new products," writes Pecoriello.

Hard numbers are difficult to come by, but published reports peg the size of the low-carb industry at nearly $20 billion.

The Morgan Stanley study found that people still follow a low-carb eating regime even if they don't reach their weight loss goals. "High attrition rates are common for most diets, but may be lower for low-carb diets, given high consumer satisfaction."

The low-carb diet was championed by the late Dr. Robert Atkins, who made our list of Top-Earning Dead Celebrities last year. The doctor began promoting the concept in the 1970s. But for years he was spurned by the medical establishment, which regarded his ideas as quackery. It wasn't until 2001 that some experts acknowledged that a low-carb, high-protein diet may have merit. These days, it seems everyone knows someone who has lost weight on the diet. Dr. Atkins New Diet Revolution is No. 1 on the New York Times paperback bestseller list/advice list and has been on the list for 345 weeks.

The South Beach Diet, which also promotes low-carb eating, is the No. 1-selling hardcover advice book and has been a bestseller for 40 weeks.

For the $500 billion packaged-food industry, low-carb products present the first big growth opportunity since the advent of the low-fat category in the 1970s. However, since the federal government began promoting a low-fat diet, obesity rates in the U.S. have soared. According to the American Medical Association, 44 million Americans are considered obese, an increase of 74% in the past 12 years.

For its part, the National Bread Leadership Council found in 2003 that 40% of Americans surveyed said they were eating less bread than they were in 2002. But the group, consisting of wheat growers and baking suppliers, has not mounted an offensive to counteract the "carbs are evil" marketing by some food companies.

Are low-carb diets like Atkins a passing fad? Maybe. But until it falls out of favor, you can bet the food industry will throw everything it has behind it.