Pet stocks will continue to hum during an economic downturn. Demographics show that our pets are increasingly an integral part…
Pet stocks will continue to hum during an economic downturn.
Demographics show that our pets are becoming an increasingly integral part of our families, which means the businesses that support them are becoming increasingly profitable. Thus, pet inventory is a valid consideration for any investor wallet. “We know there are more pets than children, and we know everyone has a pet during the pandemic,” says Simeon Hyman, head of investment strategy group at ProShares. . “If you’re worried about economic weakness, that won’t be reflected in pet stocks.” Plus, some pet businesses are taking advantage of the increased care pet owners give their furry friends, including expensive treatments and other lifestyle accommodations, says Debbie Wang, principal analyst at Morningstar. . Has the world found another recession proof market? If your cat could talk, he’d approve of these seven best pets to own in 2022.
Zoetis Inc. (symbol: ZTS)
Many animal health companies were once buried under larger human health companies, Wang says, but that’s changing fast. The change is led, in many ways, by Zoetis. According to Wang, “Zoetis is the undisputed leader in the global animal health industry.” This is the largest position in the ProShares Pet Care ETF (PAWZ), representing 11% of the entire portfolio. Hyman says the company just acquired Basepaws, which provides DNA testing for cats, recalling that everything that happens in medicine “on the human side also happens on the pet side.” In addition to the recent acquisition, “Zoetis sports one of the broadest moats in animal health, thanks to its cost advantage and intangible assets,” says Wang.
Idexx Laboratories Inc. (IDXX)
Idexx Laboratories primarily focuses on the veterinary diagnostic laboratory industry. In this space, says Wang, the company has carved out a “narrow gap.” However, she says the company is well positioned to benefit from two key trends: the overall increase in the number of pet owners and the greater willingness of pet owners to spend more on their pets. Hyman says he’s very impressed with how IDXX focuses on its relationships with vets. One-to-one relationships are important in the industry, and IDXX’s investor presentations focus on how the company develops these key relationships. IDXX is PAWZ’s second largest holding, at 10% of its overall portfolio.
Chewy Inc. (CHWY)
Chewy provides pet food and supplies directly to consumers through its e-commerce business. Morningstar equity analyst Sean Dunlop says Chewy’s founders wanted to compete with Amazon.com Inc. (AMZN) in a category that was “full of inefficiencies”. Hyman adds that Chewy’s autoship revenue, or revenue generated from automated memberships for regularly ordered items, accounts for 72% of the company’s total revenue. Autoship’s high penetration helps the company cope with fulfillment cost pressures compared to its larger counterparts, Dunlop says, because fewer split shipments make it easier to manage inventory. During the company’s first quarter earnings call on June 1, CEO Sumit Singh said “Chewy’s value proposition remains as compelling as ever.” On the same call, Chief Financial Officer Mario Marte said the company “continues to execute in the face of unprecedented macroeconomic volatility to drive strong top line growth and improve sequential profitability.”
Freshpet Inc. (FRPT)
Providing natural meals and treats for cats and dogs, Freshpet delivers its products through traditional brick-and-mortar retailers as well as online. During the company’s first quarter earnings conference call May 2, CEO William Cyr said that since “the world we operate in has an unusually high amount of economic uncertainty in it,” Freshpet intends “to operate with low leverage until the business generates strong cash flow capable of funding our capital expansion plans from operations.” Heather Pomerantz added on the call that company management is “very encouraged by the strong start to the year and even more encouraged by what they are saying about our resilience.”A group of 16 analysts interviewed by data service Koyfin rates FRPT as a “strong buy”, on average, with a potential return of around 126% over the next 12 months.
Petco Health and Wellness Co. Inc. (FRAME)
A one-stop shop for pet owners, Petco Health and Wellness offers veterinary care, grooming, food and other pet supplies at its more than 1,500 locations across North America. During the company’s first quarter earnings call on May 24, CEO Ronald Coughlin said that “while our first quarter results show nothing else, they show our ability to execute and deliver without sacrificing progress against our long-term strategic roadmap”. Chief Financial Officer Brian LaRose said the management team remains “confident in our medium and long-term directions” and “committed to maintaining our strategic investments to deliver the expected results for the entire year and beyond. Thirteen analysts polled by Koyfin predict an average return of around 50% on WOOF shares over the next 12 months.
PetIQ Inc. (PETQ)
With a market capitalization of just $519.2 million, PetIQ is by far the the smallest business included in this list. PetIQ provides prescription and over-the-counter pet medications, which run the gamut from flea, tick and other specialty medications to behavior management treatments such as topical ointments, chewable tablets and oral tablets. During the company’s first quarter earnings call on May 4, CEO Cord Christensen said, “PetIQ is well positioned to continue to grow our net sales and profitability, as well as generate cash flow solid. Chief Financial Officer Zvi Glasman said company executives are “pleased with our start to the year and remain optimistic about our growth in 2022 and beyond. Six analysts polled by Koyfin rate PETQ’s stock as a “strong buy,” on average, and forecast a 76% return for the company over the next 12 months.
Trupanion inc. (TRUP)
What Trupanion really has to offer is the surge in interest in pet insurance over the past year, Hyman says. The global pet insurance industry is already worth around $7.8 billion, according to research by Future Market Insights. It could have a compound annual growth rate, or CAGR, by 11% over the next eight years, reaching a value of $38.8 billion by the end of 2030, the IMF reports. As a major pet insurance provider across the Americas and Australia, Trupanion is poised to benefit from this growth. Eight analysts polled by Koyfin predict a 39% return on TRUP stock over the next 12 months, calling it a “buy” overall.
7 best pet stocks to sniff out gains in a downturn:
— Zoetis Inc. (ZTS)
— Idexx Laboratories Inc. (IDXX)
— Chewy Inc. (CHWY)
— Freshpet Inc. (FRPT)
— Petco Health and Wellness Co. Inc. (FRAME)
— PetIQ Inc. (PETQ)
— Trupanion inc. (TRUP)
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