Andvari Associates, an investment management firm, released its second quarter 2024 investor letter, a copy of which can be downloaded here. Year to date, the portfolio appreciated 7.7% net of fees while the SPDR S&P 500 ETF rose 15.2%. There are two primary causes of Andvari’s trailing returns: (1) the firm does not hold some of the biggest and best-performing companies, such as Nvidia, Apple, Microsoft, Google, Meta, and Amazon; and (2) poor performance of Mesa. Andvari invested in a diverse range of companies in terms of market cap. Andvari’s performance in the first half of the year is in line with what the market typically generates in a complete year. It can feel disappointing, though, if compared with higher performance of the large caps. In addition, you can check the fund’s top 5 holdings to find out its best picks for 2024.
Andvari Associates highlighted stocks like Zoetis Inc. (NYSE:ZTS) in its Q2 2024 investor letter. Zoetis Inc. (NYSE: ZTS) is involved in the research, development, manufacturing, and sale of animal health medications, vaccines, and diagnostic products and services. The one-month return of Zoetis Inc. (NYSE:ZTS) was 3.55%, and its shares lost 0.09% of their value over the last 52 weeks. On July 30, 2024, Zoetis Inc. (NYSE:ZTS) stock closed at $181.83 per share with a market capitalization of $82.968 billion.
Andvari Associates stated the following regarding Zoetis Inc. (NYSE:ZTS) in its Q2 2024 investor letter:
“Zoetis Inc. (NYSE:ZTS) was spun out of Pfizer in 2013 and is the largest company serving the animal health market. They make medicines, vaccines, diagnostics, devices, and technology solutions for their pet owners and veterinarians. Their revenues are split 65% for pet care and 35% for livestock.
The nice thing about Zoetis, and the pet healthcare market in general, is the trend of increasing pet ownership and the increasing willingness to spend more money on pets every year. When compared to overall consumer spending, spending on pets has nearly doubled since 1990. The resilience of the pet healthcare industry is particularly exceptional—the industry has never had a year of negative growth in the last 15 years. Zoetis in particular has grown several percentage points faster than the industry.
The financials of Zoetis are also exceptional. It has steady revenue growth, gross margins in the 70s, an ability to reinvest in the business at 20% returns, and is still able to return billions to shareholders with dividends and share repurchases. Despite having the highest ratio of capex to revenues in this group of new holdings, Zoetis is still very cash generative. The company generated $1.8 billion of free cash over the last twelve months off of $8.7 billion of revenues, a healthy 20% margin. In its first five years after being spun from Pfizer in 2013, Zoetis averaged 4.1% of capex to revenues. The reason for capex trending higher over the last five years is to support a slate of fast-growing new products, inventory buildups, and productivity enhancements. We believe this capex ratio will slowly come down over time as revenues come in for its newer products and as customers draw down inventories.”
A veterinarian administering a vaccine to a herd of cattle in a farm.
Zoetis Inc. (NYSE:ZTS) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 65 hedge fund portfolios held Zoetis Inc. (NYSE:ZTS) at the end of the first quarter which was 50 in the previous quarter. Zoetis Inc. (NYSE:ZTS) achieved a revenue of $2.2 billion in the first quarter, marking a 10% growth on a reported basis and 12% on an operational basis. While we acknowledge the potential of Zoetis Inc. (NYSE:ZTS) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Zoetis Inc. (NYSE:ZTS) and shared Polen Global Growth Strategy’s views on the company. In addition, please check out our hedge fund investor letters Q2 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
