I consider myself an economical person. But when it comes to our family dog, the word economical goes out the window.
I’m sure, like most dog owners, there’s not a squeaky toy that I can pass by at the local store and not feel compelled to buy.
My family and friends are the same way about their pets. They lovingly refer to them as their “fur babies,” and their pets are honorary family members.
Hardly any expense is spared to make sure these family members are well taken care of and live in a warm and nourishing home environment.
Unfortunately, one of my friend’s dog recently took ill and needed an emergency operation.
The veterinary bill was just over $5,000, but my friend did not hesitate in paying the bill in full, no questions asked. And I’m happy to report my friend’s dog is back to her friendly and lively self.
Our pets provide happiness, activity and companionship. They are an integral part of our daily lives.
According to the Centers for Disease Control and Prevention (CDC), studies show that the relationship between people and their pets can lower stress, increase fitness levels and make their owners more content.
The CDC lists the following health benefits of having a pet:
- Decreased blood pressure.
- Decreased cholesterol levels.
- Decreased triglyceride levels.
- Decreased feelings of loneliness.
- Increased opportunities for exercise and outdoor activities.
- Increased opportunities for socialization.
As you can see, owning a pet can be extremely beneficial. That’s why the overall pet industry is absolutely booming.
The Pet Care Boom
The American Pet Products Association (APPA) shows that billions are spent each year on pet care.
In 2017, pet owners spent $69.5 billion on their pets. And in 2018, that figure is expected to rise to $72 billion.
Of that 2017 $69.5 billion figure, here’s a breakdown of the largest purchases:
- $29 billion bought food.
- $17 billion was spent at the vet.
- $15 billion paid for supplies/over-the-counter medicine.
- $6 billion went toward grooming and boarding.
Overall, 68% of U.S. households, or about 84.6 million homes, own a pet, according to the APPA. Dogs and cats are the most popular pets, followed by freshwater fish and birds.
Given the robust health of the pet industry, now is a good time to consider investing a part of your portfolio in the pet care market for the long term.
Profiting From Pets
Here are some details on how to invest in this market.
Motif Investing, an online broker that provides thematic investing solutions, created an index that tracks the performance of the pet industry.
The index, called the Pet Passion Index, tracks 18 publicly traded companies that are major players in the pet industry. The index’s weight allocation is 68% veterinary care, 16% pet supplies and 16% retail.
The one-year return for the index at the time of this writing is 27.8% versus 13.5% for the S&P 500 Index. So the Pet Passion Index is beating the S&P 500 by 2 to 1.
Individual stocks performing well for this index include Zoetis, Idexx Laboratories and Trupanion.
Purchasing shares in these stocks may prove to be profitable for your portfolio in the long run.
Zoetis Inc. (NYSE: ZTS), a major manufacturer of veterinary medicines and vaccines, has approximately 300 product lines in over 100 countries. The company earned $5.3 billion in revenues last year and pays a healthy regular quarterly dividend. Zoetis is up 35% over the past year.
Idexx Laboratories Inc. (Nasdaq: IDXX), a leading global animal health care company, provides diagnostic testing and detection products for companion animals, livestock and food and water supplies. This stock is up 42.8% over the past year.
Trupanion Inc. (Nasdaq: TRUP), a provider of pet medical insurance in the U.S. and Canada, was founded in 2000 and went public in 2014.
The insurer offers one simple plan for pet health coverage and states that its plan covers 90% of actual vet costs with no payout limits. The customer retention is strong, retaining 98.6% of its members on an average monthly basis.
The company boasts 42 consecutive quarters of 25%-plus revenue growth. It even had consistent growth during the Great Recession.
Trupanion has room to expand in the U.S. market, because out of 84.6 million U.S. homes with pets, only 1% of pet owners carry pet health insurance, versus 25% in the U.K. and an astounding 40% in Sweden.
Therefore, the total addressable market size for Trupanion has the potential to increase to $32.2 billion when taking the U.K.’s market penetration under consideration. This stock is up 69.3% since last year.
Now, if buying individual stocks doesn’t work for you, I have promising news on the exchange-traded fund (ETF) front.
On June 19, Gabelli Funds launched a pet-focused ETF called the Gabelli Pet Parents’ NextShares ETF (Nasdaq: PETZC). The fund will invest at least 80% of its net assets in the pet industry.
So whether or not you’re a pet owner, now is a great time to consider investing in this growing industry.
Until next time,
Senior Research Manager, Banyan Hill Publishing