3 Stocks for Pet Lovers
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Economists and market observers constantly fret about the state of consumer spending. Because so much of the economy in the United States is dependent upon consumer spending, the reluctance of Americans to spend more has kept a lid on the pace of the economic recovery. The same can’t be said of the amount Americans are willing to spend on their pets. In fact, the American Pet Products Association estimated we spent over $50 billion on our pets in 2011. All that spending has to go somewhere, and here are three stocks poised to profit from the trend that offer a mixture of growth and dividends.
PetSmart (NASDAQ: PETM) is a $7 billion specialty retailer of pet products in the United States, Canada, and Puerto Rico. PetSmart was no dog of a stock in 2012, rising almost 40% last year. As a result, the valuation became a bit high as the trailing price-to-earnings ratio crept over 20. The stock has fallen recently on the heels of an analyst downgrade. The analyst, with Nomura, believes that the threat of e-commerce competition will result in significant margin compression. Sales increased 9% during the first nine months year over year for the company. Furthermore, PetSmart increased its dividend 18% during 2012 and currently yields 1%.
PetMed Express (NASDAQ: PETS) is a small-cap with a market value of $250 million. The company sells prescription and non-prescription pet medications, health products, and supplies for dogs and cats in the United States. Value and income investors alike will find much to like about PetMeds. The company trades for a trailing P/E of 15 times and offers a hefty yield greater than 4.5% at recent prices. PetMed raised its dividend 20% in 2012, and will likely do so again in time for its next quarterly payout. Investors would be wise to monitor the company’s operating performance going forward, as fiscal 2012 was a difficult year. Sales over the first nine months of the fiscal year dropped 3% year over year. To the company's credit, PetMeds has an effective management team, with returns on assets and equity both in excess of 20%.
Another interesting stock to consider is Zoetis (NYSE: ZTS). Shares of Zoetis began trading on February 1 after its spin-off from Pfizer. Zoetis was the animal health subsidiary of the pharmaceutical giant. The company sells vaccines and diagnostics, among other medicines, for pets and livestock. Zoetis raised $2.2 billion in its IPO, making it the largest initial offering for an American company since Facebook last May. The stock did well in its first day of trading as a public company, rising 20%. Zoetis has annual sales of roughly $4.2 billion. The company expects future compound annual growth in sales of livestock and pet medications of 6% and 5%, respectively.
The Bottom Line
If one thing is for sure, it’s that Americans love their pets. Despite painfully high unemployment and stagnant wages, we as a nation spend billions on our animals. Both PetSmart and PetMed Express have positive things to offer for growth and dividend investors alike. PetSmart has experienced solid sales growth and pays a decent dividend, while PetMed Express has a market-trouncing dividend yield and a lower valuation multiple. In addition, the initial public offering of Zoetis is an enticing entry into the area of medical treatment for animals. The animal health industry in America has experienced rapid growth in recent years and there are few signs that the days of growth are coming to an end.
Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends PetSmart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!