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Income from Solving a Global Crisis

November 14, 2019

You might not be a fan of bacon, pork chops, pork roasts or sausages… but I am. And I’m joined by billions of folks around the globe that depend on pigs for meals on a regular basis.

The crisis is called African Swine Fever (ASF). It’s a virus that is highly infectious and takes down pigs in a matter of days.

ASF originated in Africa and has quickly spread to 50 countries (and climbing) around the globe. While pig producers in the US are safe for now, ASF will continue to strike the pig market in a big way.

In China, the largest consumer of pork products, more than half of the nation’s pigs have been eliminated. That’s 300 million pigs dead by the disease as well as from culling of herds.

As a result, pork prices have soared in China by 120% since ASF emerged, even after the government-imposed price controls. And in Europe, pig prices are up 31% over the past year because China is buying pigs from all over the world, reducing supply across global markets.

USDA National Pig Price Sold—Source: Bloomberg Finance, L.P. & USDA

In the US, pork prices have been climbing since late July, and that was before ASF really started to hit the broader swath of US producers.

The Solution

In my Profitable Investing advisory, I presented the key solution for healthier swine and other livestock.

This company is a global leader in animal health medicines and vaccines. Since my recommendation, it has generated a return of over 23%, better than the return of the S&P 500 Index over the same time period.

Zoetis Incorporated (ZTS) is a Parsippany, New Jersey based company that has more than 300 product lines that are in rising demand in more than 100 countries, including China.

And before you question whether China might impose tariffs or restrictions on Zoetis, remember that China is in crisis mode when it comes to its livestock production.

And Zoetis is already in cooperation with the Chinese government and private livestock health projects addressing ASF and other threats.

Zoetis has already received two patents from the US Patent and Trademark Office to exclusively develop ASF vaccines. And the company is well on its way with needed products along with its existing vaccines for conventional swine fever.

With a strong history of vaccine development and sales, it is on the front line for heavy revenue growth over time.

Despite its market-beating performance, Zoetis should continue to perform well for investors.

Over the trailing five years, the stock has returned 179% compared to the S&P 500 Index’s 68% return and the S&P 500 Health Index’s return of 54%.

Zoetis (White) Total Return Compared to S&P 500 (Red) and S&P 500 Health (Yellow) Indexes—Source: Bloomberg Finance, L.P.

Beyond livestock healthcare and vaccines, Zoetis is also a leader in pet health and medications.

And with rising demand for looking after dogs and cats at home (including my beloved dachshund, Blue) around the globe, the company has been serving to keep them healthier and happier for longer.

Revenues are up over the trailing year by 9.8%. Operating margins are very fat at 31.1%. And this results in a whopping return on shareholder equity at 62.8%.

It retains the bulk of its profits at a rate of 81.7%, which is then channeled into drug, vaccine and other animal health products to support a robust pipeline of new revenue sources.

Cash is ample with the company’s balance sheet showing a current ratio of 3.60. This is the measure of short-term cash equivalents against short-term liabilities.

And with heavy cashflow and controlled debts to assets at 59.9%, it has the ability to easily borrow if it needs to fund development.

This sort of company doesn’t come cheap, and it’s valued at a price to trailing sales ratio of 10.1 times.

But that underlying revenue has continued to surge over the past 10 years by 57.4%, providing proof of a value proposition in its health technologies. And with its ASF vaccines, revenues should rise further.

Zoetis Revenue—Source: Bloomberg Finance, L.P.

I continue to recommend Zoetis (ZTS) for further gains, ideally for a tax-free account.

More Problem-Solvers

Generating cash from problem-solving companies is just one of the of 65 income streams I’ve featured in my recent book: Income for Life.

If you’re looking for better returns in the market or just want to make some extra cash, I highly encourage you to check out Income for Life.

It includes nearly 400 pages of income-producing investment strategies for all economic conditions as well as additional income-generating “side hustles” that anyone can use successfully.

All My Best,

Neil George
Editor, Income Investor’s Digest & Profitable Investing
Author, Income for Life