For most pet owners, their furry friends are much-loved members of the family. Pet ownership in the U.S. as well as many other countries is on the rise. As a result, the number of companies that serve the diverse needs of these animals is also increasing. Therefore today, we’ll look at three pet stocks to buy.
What is considered a pet has evolved. Types of animals that might have been considered farm or work animals or even “pests” in the past may now be welcomed as pets in many households.
A large number of academic studies point to various potential emotional and health benefits of pet ownership. Recent research led by Sandra Barker, of the Department of Psychiatry’s Center for Human-Animal Interaction at Virginia Commonwealth University, highlights “Pets are considered by some as a form of social support… Human-pet relationships are reported to 1) be similar to human-human relationships.., 2) provide a stable source of attachment security.., and 3) embody emotional closeness equivalent to close family relationships.”
While our highly valued furry friends enrich our lives, the new pet economy has also been growing fast. Walking down the pet aisle at any large supermarket will likely give investors a good feel for the scale possibilities for consumption. The pet-care space now includes food, healthcare, veterinary medicine, insurance, licences (if applicable), toys, training, per-sitting, boarding, as well grooming.
American Pet Products Association (APPA) numbers show that in 2019, Americans spent close to $100 billion on their pets. APPA says “millennials represent the largest segment of pet owners for all pet types, especially birds, small exotic companion mammals, and saltwater fish.”
Against this backdrop, here are three pet stocks to buy:
- Market Vectors Pharmaceutical ETF (NYSEARCA:PPH)
- PetMed Express (NASDAQ:PETS)
- ProShares Pet Care ETF (CBOE:PAWZ)
Pet Stocks to Buy: Market Vectors Pharmaceutical ETF (PPH)
Our first choice is an exchange-traded fund, the VanEck Vectors Pharmaceutical ETF. The fund, which has 35 holdings, follows the MVIS US Listed Pharmaceutical 25 Index. PPH provides exposure to a range of liquid and large companies in the space. Net assets stand close to $250 million.
Vaccines and a range of veterinary medicines as well as diagnostic tools constitute an important part of the growing pet-economy. There are several global pharma companies that develop, produce and commercialize many of these products. Names that pet owners would be well familiar with include Merck (NYSE:MRK), Zoetis (NYSE:ZTS), and Elanco Animal Health (NYSE:ELAN).
Investing in PPH would mean not only owning companies that look after our pets’ health, but also potentially our health. The expense ratio of 0.36% would mean $1,000 invested would incur a cost of $3.60. The 52-week range of the fund has been $46.90 to $68.02. The current price of about $62 supports a dividend yield of 1.7%.
So far in the year, the fund is down about 3.5%. However, since the lows seen in March, PPH is up more than 30%. Although some short-term profit-taking is likely, long-term investors may consider buying the dips.
Pet stocks to buy: PetMed Express (PETS)
PetMed Express was initially set up in 1996. InvestorPlace readers would possibly also know the firm as 1-800-PetMeds. The company mainly reaches out to customers directly, via online sales, which concentrate on health supplies as well as prescription and non-prescription medication for pets.
In late July, the group reported earnings for fiscal first quarter of 2020. Revenue came in at $96.2 million, handily beating analysts’ estimates. It was 20.2% higher than the first quarter of FY 2019. Diluted earnings per share of 39 cents were in line with the Street’s expectations. It was also up 50% from 26 cents from the same time last year.
The Delray Beach, Florida-based company acquired approximately 186,000 new customers in the quarter ended June 30, compared to 140,000 new customers in the same period the prior year. The average order size was $89, compared to $86 a year ago.
“During the June quarter demand in the e-commerce channel continued to be strong, with consumers shifting their purchases to online, which positively impacted both our top and bottom line,” CEO Menderes Akdag said. “In addition to sales growth, our operating income margins improved by 210 basis points, which positively impacted our earnings in the quarter.”
Year-to-date, the shares are up more than 23%, which puts them in bull-market territory. In fact, since early spring, PETS stock has almost doubled. As a result, there may be some short-term profit-taking, possibly toward the $25 level.
There are currently three analysts offering 12-month price forecasts for the company. The median target is $41. Long-term investors may consider buying the dips. The current dividend yield of 3.86% may piques the interest of many passive income seekers.
Pet stocks to buy: ProShares Pet Care ETF (PAWZ)
The ProShares Pet Care ETF provides exposure to a range of companies that are likely to benefit from increased levels of pet ownership as well as emerging trends in the industry. The sub-sectors include pharmaceuticals, health care, fresh and organic foods, and pet insurance. The fund, which has 26 holdings, track the performance of the FactSet Pet Care Index.
The top 10 holdings constitute more than 68% of PAWZ’s net assets, which stand around $80 million. The top segment allocation (by weighing) is veterinary pharmaceuticals (23.52%), veterinary diagnostics (12.99%), internet pet and pet supply retail (12.48%), pet food manufacturing (9.52%) and veterinary product distributors (7.36%).
In terms of country allocation, the U.S. tops the list with more than 70%. Next in line are the U.K. (16.89%) and Switzerland (4.40%). The top three companies are Idexx Laboratories (NASDAQ:IDXX), UK-based Dechra Pharmaceuticals and Zoetis. All three companies have growing veterinary medical businesses that are likely to continue in the new decade, too.
The expense ratio of 0.50% would mean $1,000 invested would incur a cost of $5. The 52-week range of the fund has been $31.35 to $60.88. The current price of about $57 supports a dividend yield of 0.15%.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.