Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
Coping with social distancing and self-isolation rules is a daunting task for many people. Some find solace in watching TV shows and movies on streaming platforms. Others find refuge in long video-gaming sessions. However, could the steep rise in pet ownership — resulting in a safe bet for pet stocks — be the most effective remedy for your portfolio anxiety? We dive in below.
The Demand for Companionship Rises
Of the deluge of negativity showering 2020, a significant rise in pet ownership is one of the few bright spots. According to the Bank of America survey investigating consumer habits of 2500 adults, spending on pets has risen year-over-year (YOY) by 23.13%. Moreover, 37% of Americans adopted some kind of furry companion in the last six months.
This stands to reason as there is no shortage of cute animals regularly receiving millions of views across social media, from Twitter to Youtube and TikTok. Likewise, there is no shortage of studies pointing to the mood-boosting effects of animal-human interactions. On top of that, the rise in pet ownership seems to be bolstered by the trend of people leaving cities and moving into suburbs, as online work and education becomes more commonplace.
3 Pet Stocks to Consider Right Now
Owning a pet is a serious responsibility, so we can only hope this trend will not backfire as the recession prolongs. In the meantime, take a look at these pet stocks setting off, as Bank of America gives them all a “Buy” rating.
First, let’s take a look at pet stocks that are not going away anytime soon, regardless of COVID-19-induced trends. In the end, everyone relies on rural areas to give us sustenance, and aptly-named Tractor Supply is there to supply American farms and ranches. Not only is TSCO firmly entrenched in the retail supply chain of farm animals but animal companions as well.
TSCO keeps expanding and modernizing its operations, with the recent opening of a large store in Painesville Township, a new store set to open in Arlington, and offering free WiFi hotspots in its parking lots. Recently, TSCO had received a 2020 Certification by Great Place to Work.
On October 22, TSCO is set to release its Q3 earnings report. Based on previous reports, analysts project TSCO to gain a 21.5% YoY revenue growth. For the same Q3 quarter last year, TSCO reported $1.984 billion in revenue. Of all quarterly reports from 2018 to 2020, TMSC missed only two analyst expectations – in Q2 and Q4, 2019 – but beat all other report earnings.
With pet ownership comes the responsibility to provide them with proper healthcare. IDXX is the leading provider of laboratory services and point-of-care tools necessary for diagnosing and treating animals. The company has its own diversified portfolio of products and services, which makes it an especially appealing investment.
In broader terms, IDEXX is one of 933 firms in the Medical group. While the Medical group managed to gain only 1.6% on average, IDEXX shifted higher by 62% on a year-to-date (YTD). Moreover, stocks in the Medical Instruments group, which is the subgroup of the Medical group, gained nearly 21.5%. As being a part of the 95-member Medical Instruments group, IDEXX continues to outperform its peers.
In short, even prior to the pandemic, IDEXX held a #1 position in companion animal healthcare, both for veterinary lab services and diagnostic instruments. With this year’s pet boom, IDEXX is poised to expand and solidify its leadership in pet care.
Following the brick-and-mortar rural retailer (TSCO), and leading pet care provider (IDEXX), we will conclude with an online retailer Chewy.com, with its 31% growth potential. This makes Chewy an attractive growth stock when it comes to the arena of pet stocks.
It’s also a testament to Chewy’s e-commerce fortitude to stand against the giants like Amazon and Walmart. Chewy’s competitor edge lies within the personalization of pet service across 1,600 customer specialists.
This creates a solid foundation for brand loyalty and a subscription-based growth model — which is great for the investors favoring fundamental analysis. After all, pet food and other supplies fit perfectly within a consistent supply service with a personalized touch, while providing many subscription-based bonuses.
Thanks to its own logistics network across 6.1 million square feet of warehouses, but eschewing the costs of the brick-and-mortar business model, Chewy offers over 2,000 brands of pet food and supplies. Q2 2020 saw Chewy’s sales increase by 47% YoY while reporting a net loss of $32.8 million. However, this is merely the tiny cost of growth as its sales for Q2 this year accounted for $1.7 billion.
What do you think about pet stocks given the market’s current sentiment? Let us know in the comments section below.
Disclosure: Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.