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, Inc. (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 Inc (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 Inc (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.