Love Fur Sale

By AnnaLisa Kraft - July 18, 2012 | Tickers: AMZN, CHD, PETS, PETM, PFE, WMT | 0 Comments

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In America there is something more beloved than Mom, the flag and apple pie: our family pet (or pets).  Millions of Americans are 'pet parents' and many publicly traded stocks profit from our love for companion animals, cats, dogs, ferrets, what have you.  

According to the American Pet Products Association's 2009 figures, it costs approximately $15,000 over ten years to keep a healthy dog and $10,000 for a cat. How can you make enough to at least pay for Bowzer’s keep?  Let’s say you put these amounts into certain pet related stocks for the last ten years. I’m choosing PetMed Express  Inc (NASDAQ: PETS), PetSmart Inc (NASDAQ: PETM), Church & Dwight Co, Inc (NYSE: CHD), Wal-Mart Stores, Inc (NYSE: WMT), and Pfizer Inc (NYSE: PFE) because each of these has pet related sales, pays a dividend, and is a well known name.

Pfizer has the biggest unit devoted to animal health in the world. That unit, Animal Health Business, will be spun off into the IPO of a minority stake of a standalone company, Zoetis, by July 2013, according to Pfizer news releases. In 2011 alone, the Animal Health Unit added revenues of $4.2 billion to Pfizer’s coffers.   Pfizer would have been a disappointing choice if you purchased it in early 2002 at over $40, only to see the share price more than halved to less than $15.00 in 2009. It has slowly inched back up from being a real ‘dog of the Dow’ to around $23.00.  Of course, Pfizer has always been known for its dividend and had you held it all that time you might be even by now. It yields 3.80%, and the Zoetis spin-off will still be noted in Pfizer's accounting.  When Mead Johnson Nutrition, the formula and baby food company, was spun off from Bristol Myers Squibb, it started performing well right from the start, climbing from the low $20’s in 2009 to the $80’s in 2012. Zoetis could conceivably perform in the same manner, but for right now you could just hold Pfizer. For more see my Sex, Drugs and Rock and Roll Portfolio.

Pet Med Express is in the drug delivery business. You could have purchased Pet Med Express in June 2002 for $1.37 and watched it hit multi-year highs in March 2010 of $21.34, more than a ten bagger, only to see that halved in 2011 to $8.51. It’s been moving back up, too, to $11.50. The company markets medications, both non-prescription and prescription meds, heath products, and supplies for cats and dogs in the U.S. It is the biggest yielder of the group, with a 5.20% dividend, but since 2010 has faced a great deal of competition from, of all places, Wal-Mart. The dividend may be difficult to sustain, as pointed out in this Fool's post.

What About Kitty?

Church & Dwight is one of the biggest beneficiaries from cat owners, as it dominates store shelves with its deodorizing kitty litter products as well as cleaners and deodorizers for pet stains and odors; it yields 1.70%.  Also, the Federal Trade Commission closed an antitrust probe into the company on its Trojan condom marketing prices.  Over 10 years, its chart is a beautiful line upward without any 2008-9 crisis plunge.  It reports August 6.

Who’s Best Of Breed

PetSmart, Inc is the specialty retailer for pets in the US, Puerto Rico, and Canada. It also offers boarding, grooming, day camps and full-service pet hospitals, though some of these services are not available at all retail locations.  The company has a market cap of 7.47 billion and a yield of 1.00%. This is one that would easily have paid for your pet’s room and board, as in 2002 it was trading under $5 and is now hitting all time highs nearly every day, right around $70.00; this has definitely been a “best of breed’ performer. With the expansion into so many services, ‘pet parents’ can go to just one place for their fish, ferrets, dog, and cat needs: food, treats, toys, healthcare, and even a place to rest their heads when their ‘human’ has to go out of town. The P/E is 24.71. Sales growth has slowed in the last few years, and institutions have been cutting their holdings.  PetSmart reports August 13, and shares may pull back, as this is another one that has had a big run.  Its competitors are privately held Petco, Target, and Wal-Mart directly and, indirectly, Amazon.com, Inc, which has an online pet supplies store, and Wag.com, subtitled everything for your pet, with 20,000+ pet supplies for all kinds of pets, reptiles, birds, fish, small pets, cats, and dogs.

Lastly, Wal-Mart is considered a direct competitor, as it has pricing power for all the privately held pet supply companies. It has especially been encroaching on PetMed Express with its lower price medicines. Wal-Mart has a 2.20% yield and a P/E of 15.76.  This is hitting 52 week highs almost daily, too, despite a  Foreign Corrupt Practices Act investigation for practices in Mexico. Over the last ten years, Wal-Mart has traded between $40 and $60 and just this spring catapulted from the low 60’s to its Friday the 13^th closing price of $73.18. Wal-Mart reports on August 16, and you can read more about it from my earlier post here.

People love their pets, and it is not just a trend. Every year, pet ownership grows by double digits in America. I could tell you story after story about how much people love their companions, like my neighbor who wears a miner’s headlamp so her three dogs can see where they’re going when she walks them at night, or an octogenarian friend of mine who would sacrifice her own medication to pay her dog’s vet bill.  Why not invest in something that helps you pay to spoil your 'petbaby?'

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