In this article we will list the 10 best stocks for animal lovers. If you want to skip our detailed analysis of the pet industry, go directly to the 5 Best Stocks for Animal Lovers.
Pets are increasingly considered as part of our families and you can see this in pet industry numbers too. According to American Pet Products Association (APPA), Americans spent $103.6 billion on their pets in 2020. That’s an increase of nearly 7% from 2019. Insider Monkey estimates that the pet market will surpass $110 billion in 2021. More than 40% of this amount is spent on pet foods and treats, 30+% is spent on vet care and products, and more than 20% is spent on supplies, OTC medicine and live animals.
According to APPA, Americans own more than 63 million dogs, 43 million cats, 11.5 million freshwater fish, and 5.7 million birds as pets. Dog owners estimate that they spend an average of $426 per year on pet surgery, $212 on routine vet visits, and $58 on vitamins. The corresponding figures for cat owners are $214 on pet surgery, $160 on routine vet visits, and $54 on vitamins. As you can estimate, pet healthcare spending is a major and growing expense category for animal lovers.
Pet business is also nearly recession proof and this makes sense. Even though we went through a sharp market correction in March 2020, ProShares Pet Care ETF (PAWZ) outperformed the market during and after the correction. PAWZ “invests in a range of companies that stand to potentially benefit from the proliferation of pet ownership. In this article we will use this ETF as our yardstick.
PAWZ allocates approximately a 55% weight to pet health companies like IDEXX Laboratories, Inc. (NASDAQ: IDXX), Zoetis Inc. (NYSE: ZTS), and Dechra Pharmaceuticals PLC (LSE: DPH.L). PAWZ also put aside 24% of its dollars for pet supplies and stores stocks like Chewy, Inc. (NYSE: CHWY), and allocated a 21% weight to Pet Food companies like Freshpet, Inc. (NASDAQ: FRPT). For the most part, PAWZ invests in pet pharmaceutical stocks as these companies usually enjoy higher margins than pet food stocks.
In this article we will rank the 20 US holdings of ProShares Pet Care ETF (PAWZ) using Insider Monkey’s hedge fund sentiment data and identify the 10 best stocks for animal lovers. Since our hedge fund sentiment data excludes the foreign stocks, our list will be excluding some potentially very promising foreign companies. For example PAWZ’s third biggest pharmaceutical holding is Dechra and this stock won’t be included in our list because of lack of hedge fund sentiment data.
Chirtsova Natalia/Shutterstock.com
You have to keep in mind that our rankings represent hedge funds’ list of 10 best stocks for animal lovers. Our premium newsletters might have a different opinion on these stocks. You already know that ProShares have a different opinion than the hedge funds tracked by Insider Monkey.
Let’s now take a look at the best stocks for pet lovers.
10. Heska Corporation (NASDAQ: HSKA)
Number of HFs: 28
Value of HF Holdings: $284 million
Rank in PAWZ: 14
Weight in PAWZ: 2.7%
Heska Corporation (NASDAQ: HSKA) is a Colorado-based firm that makes and sells veterinary diagnostic products for canine and feline healthcare. The company operates in the United States, Canada, Mexico, Australia, France, Germany, Italy, Malaysia, Spain, and Switzerland. Some of the products marketed by the company include Element DC, a chemical analyzer of veterinary blood chemistry, and Tri-heart, tablets for canine heartworm infections. The company was founded in 1988 and is ranked ninth on our list of 10 best small cap stocks to buy in 2021.
Heska Corporation has a market cap of more than $2.35 billion and posted more than $197 million in annual revenue in December 2020, up from $122 million in the previous year. In January, the firm announced that it was acquiring Lacuna Diagnostics, a point-of-care diagnostics digital cytology technology and telemedicine services firm, for an undisclosed fee. HSKA also reported a revenue of $60.5 million for the first quarter of 2021, double the 2020Q1 revenue. Two years ago, Scott Humprey, a member of HSKA’s board, purchased 1000 shares at $73. This trade so far yielded more than 200% return for this insider. Make sure you follow his next trade.
9. General Mills, Inc. (NYSE: GIS)
Number of HFs: 31
Value of HF Holdings: $797 million
Rank in PAWZ: 16
Weight in PAWZ: 2.0%
General Mills, Inc. (NYSE: GIS) is a Minnesota-based multinational food and retail firm founded in 1928. It is placed fourth on our list of 10 best stocks to buy for early retirement. General Mills stock has returned more than 12% to investors over the past three months. Some of the famous brands owned by the company include Cheerios, Cinnamon Toast Crunch, Cocoa Puffs, Cookie Crisp, Fruit by the Foot, Haagen-Dazs, Kix, Raisin Nut Bran, Total, Totino’s, Trix, Wanchai Ferry, Wheaties, Yoki, and Yoplait, among others.
In earnings for the third fiscal quarter, disclosed in late March, General Mills, Inc. (NYSE: GIS) posted earnings per share of $0.82, just missing market estimates by $0.02. The revenue over the period was $4.5 billion, beating market predictions by $60 million.
In its Q4 2020 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and General Mills, Inc. (NYSE: GIS) was one of them. Here is what the fund said:
“We purchased a position in General Mills (tkr: GIS). General Mills is a manufacturer and marketer of branded consumer foods and pet food products sold mainly through retail stores. It has greatly benefited from the “people eating at home” theme during the pandemic. Although this growth driver is likely to persist through 2021, that is not the main reason to own General Mills. The management team has done an excellent job diversifying product lines, and has successfully identified new trends and brought products forth accordingly. Some notable brands and products include Annie’s, Cheerios, Betty Crocker, Blue Buffalo, EPIC, Pillsbury and Yoplait. General Mills has maintained a healthy balance sheet, consistent with industry practice. It is relatively inexpensive with a P/E ratio of 15x (about half that of Hormel) and pays a 3.4% dividend, making it a great core holding within the consumer staples sector.”
8. Chewy, Inc. (NYSE: CHWY)
Number of HFs: 32
Value of HF Holdings: $434 million
Rank in PAWZ: 4
Weight in PAWZ: 8.7%
Ranking 8th in the 10 best stocks for animal lovers is e-commerce pet commodities company Chewy, Inc. (NYSE:CHWY). Chewy, Inc. functions as an online retailer for pet products to over 19 million active customers. Chewy, Inc. was initially acquired by PetSmart in a $3.35 billion deal that closed in 2017. However, in 2020, the companies announced that they have ended their partnership in a $6 billion recap deal. In 2021, Chewy, Inc. launched its newest platform “Connect with a Vet” to customers in 47 states. The platform was rated 10/10 during the launch by 80% of its users.
Chewy, Inc. (NYSE:CHWY) posted its net sales of $2.14 billion in the first quarter of 2021, up 31.7% year-over-year. On May 3, Guggenheim initiated coverage On Chewy with a Buy rating and announces a price target of $95.
There were 32 hedge funds that reported owning stakes in Chewy, Inc. (NYSE:CHWY) at the end of the first quarter, down from 37 funds a quarter earlier. The total value of these stakes at the end of Q1 is $433 million.
Nelson Capital Management mentioned Chewy, Inc. (NYSE:CHWY) in its 4Q 2020 investor letter:
“One of our investment themes over the last several years has been the “humanization of pets,” which refers to the increasing amount of time and money that people are devoting to their animals. This theme has become even more evident during the pandemic, as many families and individuals have adopted pets while spending more time at home. Today, more than 85 million US households have pets. In 2015, roughly 7% of pet products in the U.S. were bought online. By 2019, that number had increased to 22%. Moreover, the pandemic has caused pet parents, new and experienced alike, to sign up for delivery of pet supplies in order to avoid trips to physical stores. 72% of pet owners made at least one online purchase for their pets in the past 12 months and 39% of those were subscription-based purchases.
Chewy (tkr: CHWY) is the largest pure-play pet “e-tailer” in the world, offering “the personalized service of a neighborhood pet store combined with the convenience and speed of e-commerce.” The company was founded in 2011 and was bought by PetSmart in 2017, for $3 billion. In June, 2019, Chewy went public. All of its sales are currently U.S.-based. The company has co-headquarters with one facility in Dania Beach, Florida and one in Boston, Massachusetts, and employs about 12,000 people. Chewy offers a selection of high-quality pet food, treats, supplies, and pet healthcare products.
In addition to one-time sales, Chewy is creating a recurring revenue model through its “autoship” program. This is essentially a subscription service for products that are sent at intervals specified by customers and includes such items as food and medicine. Customers are more profitable the longer they stay with the company, as their “lifetime value” grows. The company is organized around providing an exceptional customer experience. Chewy has 10 fulfillment centers scattered across the US, which enable cost-efficient overnight shipments to about 80% of the U.S. population and cost-efficient two-day shipments to nearly 100%. This allows Chewy to provide excellent service to the company’s more than 12.7 million active users.
Chewy’s ability operate profitably in the future hinges on two key variables: growing its customer base and more efficiently managing its fulfillment costs through automation of its fulfillment centers, thereby decreasing labor costs. Chewy has a smart, experienced management team and the company is expected to become profitable at the end of this fiscal year.”
7. The J. M. Smucker Company (NYSE: SJM)
Number of HFs: 33
Value of HF Holdings: $690 million
Rank in PAWZ: 26
Weight in PAWZ: 0.8%
The American manufacturer of supermarket food JM Smucker Co also operates a pet food business including brands such as Milk-Bone and Meow Mix. The company offers a 2.96% dividend yield. During the 2020 fiscal first quarter, SJM’s pet products had the highest net sales at 38% of their total revenue. During the fiscal 2021 third quarter, SJM reported net sales of $104.4 million, a 7% increase driven by the company’s US and international growth in retail business.
In their Q4 2020 investor letter, Roubaix Capital LLC mentioned a few stocks, and JM Smucker Co. was one of them.
Here is what Roubaix Capital LLC said:
“Companies including J.M Smucker Company (SJM) have seen their sales accelerate to unsustainable levels that are not consistent with their mature end markets. We expect sales to slow and eventually give back some of the one-time gains caused by the unusual circumstances of 2020. Further, we question the sustainability of current peak valuations in the face of likely peak sales. We believe companies with such characteristics could face a combination of negative earnings revisions and lower valuations as the demand reality sets in this year. We also anticipate that companies that have benefited from consumers being homebound will see very challenging comparisons in 2021. No doubt, spending on home improvement and furnishing grew at unsustainable rates in 2020.”
6. Elanco Animal Health Incorporated (NYSE: ELAN)
Number of HFs: 42
Value of HF Holdings: $1.71 billion
Rank in PAWZ: 27
Weight in PAWZ: 0.8%
Headquartered in Indiana, United States, Elanco Animal Health, Inc. operates an innovative and product and solution company that aims to enhance animal health. The company was founded in 1954 and held its IPO in 2018 priced at $24 per share. Shares of ELAN soared 32% over the last twelve months. At the end of the fourth quarter, ELAN reported a 44% year-over-year increase in revenue to $1.1 billion.
With an $853 million stake in Elanco Animal Health, Inc., Scott Fergusons’ Sachem Head Capital owns 27 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 43 hedge funds held stakes in ELAN at the end of the fourth quarter, versus 21 funds at the end of the third quarter.
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Disclosure: None. 10 Best Stocks for Animal Lovers is originally published on Insider Monkey.
