Not even one of the worst recessions in decades could slow down the billions spent by Americans on their beloved pets. According to the American Pets Products Association, owners spent $45.5 billion on their pets in 2009, up from $43.2 billion in 2008. It is currently projected that pet owners will spend around $48 billion in 2010.
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The largest, publicly traded pet supply retail is PetSmart (Nasdaq:PETM) with around 1,150 stores and an additional 750 animal hospitals. Interestingly enough, PETM has been seeing sales growth and steady margins during the duration of the recession. The stock has been strong, currently just about at its 52 week high. Fundamentally, PETM is also attractive with a forward P/E ratio of 17.6, and currently up 27.77% so far this year.
Spending on doggie toys has not been slowing, so it comes as no surprise that the money going to maintain pets' health is following the trend. Therefore, investors who are interested in investing in the growth in spending on pets can also choose to look at companies that run the animal hospitals or supply the medicine administered by the veterinarians.
MWI Veterinary Supply (Nasdaq:MWIV) is a distributor of animal health products to veterinarians and animal hospitals. The company was able to flourish during the recession, and revenues increased by 20% in 2010 over 2009 numbers. MWIV is up 40% year to date.
While MWIV supplies its products to doctors, PetMed Express (Nasdaq:PETS) markets its prescription and non-prescription pet medications directly to the consumers. PETS fell quite a bit in May, much due to competition from none other than Wal-Mart (NYSE:WMT). This is not a big surprise considering Wal-Mart has the foot traffic to sell pet medications at a discount. Despite all this, PETS is up 9.66% this year.
Hospitals and Testing
VCA Antech (Nasdaq:WOOF) operates in three divisions: animal hospitals, laboratories and medical technology. The company is trading at an attractive 15.7 forward P/E ratio, however growth could be questioned if the economy does not pick up faster. After all, an elective surgery for the family pet could be put on hold until the family's finances improve, whereas food and toys will be a constant expenditure. WOOF is up 7.8% on the year.
Neogen (Nasdaq:NEOG) is an interesting play because it is involved in food and animal safety products. The animal safety division focuses on drugs, vaccines, medical equipment and diagnostic tests that can be sold directly or through large farm supply retail chains. The most impressive fact about NEOG is its consistent revenue and earnings growth through bull and bear markets. NEOG is up 22.45% year to date.
The Bottom Line
Animal-related stocks should hold up better than the overall market in the event of a new bear market and with solid growth may be positioned to join the party if stocks rally.
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