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4 Stocks to Make the Most of the Growing Love for Pets

Tirthankar Chakraborty

Americans are spending more on their pet needs now — whether it’s food, veterinary care or medicines. In the United States, the pet industry is set to grow 3.9% to a record $75.4 billion this year, according to the American Pet Products Association (APPA). And many are cashing on the trend, including Hollywood!

Universal Pictures recently launched The Secret Life of Pets 2, while the original movie had raked in a profit of more than $370 million, including secondary sales. What’s more, this pet movie sequel is currently expected to generate more income than the superhero-based Dark Phoenix.

But, it’s just not this year that the U.S. pet industry is expected to grow at a healthy pace. Since 1994, the industry has been growing consistently with expenditures topping out roughly $72 billion last year. That’s a jump of 4% compared to 2017. By the way, there were a couple of trends that stood out last year. While an estimated $480 million was spent on pet costumes, one of 10 pet owners created a social media page exclusively for them.

Coming back to 2019, the biggest part of pet spending is expected to be on food. Outlays on pet foods may rise nearly 4.5% to $31.7 billion this year, added APPA. The biggest pet owners incidentally are millennials. And they are the ones who are paying premier prices for natural meals. General Mills, in particular, reported that its natural pet food business rose 11% over the past year.

The next category where pet spending is expected to rise significantly is veterinary care. APPA expects spending amount to scale 4.8% this year to $19 billion. Neal Rosenberg, manager of the Baron Growth fund, chipped in and said that nowadays vet visits for checkup are getting more frequent, helping pets live longer. Talking about the Baron Growth fund, it climbed 12% over the past year, way more than the broader S&P 500’S return. Rosenberg added that the Baron Growth fund invests in pet companies since they have high barriers to entry, strong cash flow and scope to gain market share.

But, why is pet spending increasing these days? It’s because of a particular shift in social norm. In the ninetieth century, the average age for a woman or a man to get married in the United States is between 20 and 23. But now, the average age has gone up to 27 for women and 29 for men. This is particularly because many of them are opting to focus on careers and education in early years of adulthood. Moreover, previously, women had more number of children. For instance, woman had five children on an average in the 1950s, while now they have an average of 2.5.

All these show that people are either delaying or completely putting off family planning. Instead, they are choosing to adopt pets.
It’s also worth pointing out that the U.S. fertility rate is currently at an all-time low, leading to people having more number of pets. Naturally, spending on pets is increasing by leaps and bounds. Given such bullish trends, here are few stocks to consider in the booming pet industry.

Merck

Merck & Co., Inc. MRK, which provides healthcare solutions, is also known for being an animal health company. The company generated solid revenues of $42.3 billion last year, and a large chunk has come from its pet division with sales of $4.2 billion.

The company has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has moved up 1.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 9.2% compared with the Large Cap Pharmaceuticals industry’s estimated decline of 2.7%. The company has outperformed the broader industry so far this year (+11.5% vs +4.3%).

Tractor Supply

Tractor Supply Company TSCO operates rural lifestyle retail stores in the United States. The company offers a selection of merchandise, including equine, livestock, pet, and small animal products. The company owns Petsense, a small-box pet specialty supply retailer. There are almost 176 Petsense stores in 26 states in the United States.

The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 0.2% over the past 60 days. The company, which is part of the Retail - Miscellaneous industry is expected to post an earnings growth of 10.5% and 10.7% for the next quarter and current year, respectively. The company has outperformed the broader industry on a year-to-date basis (+27.8% vs +21.4%).

Idexx Laboratories

IDEXX Laboratories, Inc. IDXX is the pioneer in pet diagnostics for companion animals. It is known for selling diagnostic machines to vets that has given the company long-term recurring revenues.

The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 2.8% north over the past 60 days. The company, which is part of the Medical - Instruments industry, is expected to register earnings growth of 10.5% and 13.2% in the next quarter and current year, respectively. The company has outperformed the broader industry so far this year (+45.9% vs +17.2%). You can see the complete list of today’s Zacks #1 Rank stocks here.

CVS Health

CVS Health Corporation CVS may be a healthcare company but it also sells pet foods, toys and grooming tools.

The company has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has moved up 1% over the past 60 days. The company, which is part of the Retail - Pharmacies and Drug Stores industry, is expected to record earnings growth of 4.1% next year. The company has outperformed the broader industry over the past decade (+72.8% vs +62.0%).

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