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More Pet Profits

September 17, 2020

I love dogs. I have my beloved miniature dachshund, Blue, who is one of the best dogs ever.

On my morning runs, I always enjoy greeting all of the dogs and their parents around my neighborhood, at a socially safe distance of course.

And I’m not alone.

68% of US households have at least one pet, according to the American Pet Products Association (APPA). That amounts to 84.6 million households, up 6.2% from 79.7 million in 2015.

And 95% of those households consider their companions as members of the family according to Harris Polls, up from 88% in similar surveys in 2007.

In this economically challenged time, pet parents aren’t skimping on food or care for their furry and feathered friends. Harris reports that 68% of parents are making no cutbacks when it comes to their pets, particularly their dogs.

And during the stay at home and remote work conditions, pets are in demand. Dog breeders are seeing surges in demand and, more importantly, animal shelters are seeing a drop in incoming pets and rising demand for adoptions.

Spending on pets in the US also continues to grow. According to the APPA, spending for 2020 is projected to come in at $99 billion, up from $94.7 billion in 2019 and $90.5 billion in 2018, representing a climb of 9.4% in just two years.

Some of the major breakouts of that spending as tracked by Nielsen (NLSN) as well as APPA and the American Veterinary Medical Association (AVMA) include food at $38.4 billion, supplies $19.8 billion, veterinary care at $30.2 billion as well as other spending on things like grooming at $10.7 billion.

At the vet, one of the most dreaded places on the planet for most dogs, the average spending for procedures for dogs comes in at $426, and routine care at $212. This adds up over any given year. The American Society for the Prevention of Cruelty to Animals (ASPCA) estimates that the average annual cost for dog care is $1,843.

Love & Money

All of this is well-known to me, and not just in terms of caring for Blue, but because of companies inside the model portfolios of Profitable Investing.

The pet care market continues to be a big growth sector that shows resiliency, even during the most challenging economic circumstances.

 

FactSet Pet Care, S&P 500 & S&P Health Care Indexes Total Return—Source: Bloomberg Finance, L.P.

FactSet Research Systems is a global economic and financial data company. And it has built a Pet Care Index that tracks the leading companies in the pet care market. Its index has returned 117% over the past five years, which is way better than the basic S&P 500 Index and even the S&P Health Care Index for the same time period.

And it gets even better for 2020. The Pet Care Index has returned 30.2% year to date, which dwarfs the S&P 500’s return of 6.5% and the Health Care Index’s return of 5.8%.

Despite the continued outperformance, the average price to sales ratio of the Pet Care Index is only 2.15 times, which is at a discount to the price to sales ratio of the tech-weighted S&P 500’s 2.28 times. This means pets companies and their parents are still values.

Some of the leading companies in the pet space include Nestlé (NSRGY), which is one of the leading pet food and related product companies in the world. Its pet care products make up 15.1% of overall sales, and they’re up by 5.3% in just the most recent reported quarter alone.

The shares have returned 414.4% since being added to Profitable Investing. NSRGY is a buy in a taxable account.

Also, in the model portfolios is Zoetis (ZTS), which is a class-leading animal health and vaccine company with major problem solution capabilities, including developing animal-to-human virus vaccines.

Its revenues continue to climb with the compound annual growth rate (CAGR) running at 5% over the past 10 years. It has returned 60.2% since being added to the portfolio, which is more than double the return of the S&P 500. ZTS is a buy in a tax-free account.

Joining Zoetis in the pet and animal pharmaceutical products market is Merck (MRK) in the Incredible Dividend Machine.

While animal health is a smaller percentage of its product revenues, animal health still gets 10.1% of overall sales from our furry friends and that continues to climb. MRK has returned 67.3% since it was added to the portfolio and remains a buy in a tax-free account.

Last up in the current holdings is Amazon (AMZN). This is the company that provides the retail platform for so many pet products along with the evermore important logistical delivery capabilities that our pets depend upon.

It has been one of the stock market stars with a gain of 32.4% since our initial buy in April. AMZN remains a buy in a tax-free account.

To get my latest guidance on Nestlé (NSRGY), Zoetis (ZTS), Merck (MRK) and Amazon (AMZN), sign up to become a Profitable Investing subscriber today.

 

All My Best,

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