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>>> 7 Ways to Invest in the Pet Industry

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gfp927z   Friday, 08/14/20 10:26:58 AM
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>>> 7 Ways to Invest in the Pet Industry

Americans spent more than $70 billion on their pets in 2018, one study found.

By Ellen Chang

June 3, 2019

U.S. News & World Report


Some pet investments perform better than others.

Animal owners continue to spend money for their companions whether it's for food, medicine or veterinary care. Since 1994, the pet industry has consistently risen with expenditures topping out at $72.56 billion last year, according to the American Pet Products Association. APPA estimates that the industry will climb to $75.38 billion this year. "There are more opportunities in the pet industry than many investors may realize," says Rich Messina, a senior vice president at E-Trade Financial, a New York-based brokerage company. Here are seven ways to invest in the pet industry, ranging from stocks to a handful of exchange-traded and mutual funds.

Merck & Co. (ticker: MRK)

Merck, the global pharmaceuticals, vaccines and animal health company that generated revenue of about $42.3 billion in 2018, has a large pet division with sales of $4.2 billion in 2018 from farm animals to pets. The company's stock has a 52-week low of $58.52 and a 52-week high of $83.85, with a dividend yield of 2.77%. Merck also participates in a dividend reinvestment plans, known as DRIPs, for automatic investment. The stock was upgraded in May by Atlantic Equities' analyst Steve Chesney to overweight because the company is well-positioned to continue its growth and is "insulated from trade-related volatility."

CVS Health (CVS)

A health care company, CVS also sells pet foods, toys and grooming tools in its retail stores and online. The drugstore chain and pharmacy benefit manager company reported its 2018 total revenue rose by 5.3% to $194.6 billion. The company's 52-week range of its stock is $51.77 to $82.15 and provides a dividend yield of 3.5%. CVS acquired Aetna, a health insurance company, for $69 billion in 2018. CFRA analyst Kevin Huang rates the stock as a "strong buy" and wrote in a May 29 report that the shares are undervalued. His price target is $77 and anticipates that 2019 sales increase to $252 due to its acquisition of Aetna.

ProShares Pet Care ETF (PAWZ)

The ProShares Pet Care ETF has "not caught on with the investing public," says Len Rosenthal, a finance professor at Bentley University. Launched in November 2018, the ETF has 25 assets ranging from pharmaceutical companies to retailers. The return has been a paltry 2.3% since its inception, but the fund is only a few months old. Investors may not be aware of this new fund yet. This ETF is not popular in terms of trade volume, with the average daily volume trading at nearly 7,000 shares since its inception. The expense ratio is 0.5%, but due to it low trading volume, the fund's fees increase to about 0.69%.

Tractor Supply (TSCO)

Tractor Supply sells supplies and products to recreational farmers, ranchers, animal and pet owners. In 2018, the company reported more than $7 billion in sales from about 1,700 stores in 49 states. Tractor Supply Company also owns Petsense, a small-box pet specialty supply retailer. As of March, the company operated 176 Petsense stores in 26 states. TSCO's shares have ranged from $73.46 to $107.98 in the past 52 weeks. Credit Suisse analyst Seth Sigman has a neutral rating with a price target of $105. In his May report, he says the company is "one of the most unique profit growers right now … but it is still not cheap, which ultimately keeps us on the sidelines."

Gabelli Pet Parents' Fund (PETZX)

PETZX, which was launched in April and invests in companion animal food, veterinary pharmaceuticals, therapeutics, diagnostics and pet supplies. Before investors dive into thematic ETFs or niche funds, they should conduct research, Messina says. The return is a -1.16% with an expense ratio of 0.96%. "Niche funds can have higher expense ratios and some are simply just marketing gimmicks for the fund company with only seed money as assets under management," he says. "The number of investments that comprise the mutual fund or ETF can be pretty small, resulting in potentially significant swings in price and limited diversification compared to a broad market fund."

PetMed Express (PETS)

Founded in 1996, online pet pharmacy PetMed Express sells pet medications among other health products directly to consumers. Share prices of PetMed Express have ranged from $17.48 to $46.83 during the past 52 weeks, and it has a dividend yield of 6.07%. The stock has been rated "underperform" by Credit Suisse analyst Erin Wilson Wright. PETS is predicted to face more challenges from its competitors since reorder sales were weaker and new customers dipped by 10.6% in the last quarter, she wrote in a May report. The company's stock has declined by 7% year to date, suggesting that its margins were also affected by its aggressive discounts and promotions.

Trupanion (TRUP)

Trupanion, a pet health insurance provider, provides health insurance for cats and dogs. The company has a business segment that sells polices to companies that provide medical insurance for pets as a benefit to their employees. TRUP's shares have ranged from $22.38 to $46.70 during the past 52 weeks. Trupanion's earnings strength is "very negative," according to a May report by Ford Equity Research. The report says Trupanion’s earnings have shown “strong deceleration in quarterly growth rates when adjusted for the volatility of earnings. This is an indication of weakness that could lead to declining earnings."


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