In this article, we shared our list of the 10 best pet stocks to buy now.
The pet industry saw a huge growth in 2020 amid the coronavirus crisis. As people were forced to stay at home, they preferred to spend time with pets. In 2019, the pet care market reached $255 billion. The number is expected to increase to $358 billion by 2027 with a compound annual growth rate (CAGR) of 6%.
The pet industry consists of a broad variety of products such as food, clothing, grooming, and similar commodities. According to the US Bureau of Labor Statistics, the pet industry provides 189,384 jobs to the American economy.
Technology and the Pet Industry
Technology is rapidly changing the pet industry. In 2018, the global pet tech market was valued at $4.5 billion and is expected to grow over $20 billion by 2025. For instance, the online pet care company Rover helps coordinate dog sitters with pet owners. In 2018, the company raised a total of $91.5 million. The online pet care company is planning to go public through a merger with Nebula Caravel Acquisition Corp. under the ticker symbol ROVR.
The multinational conglomerate Sony Corporation (NYSE: SNE) jumped in the pet industry and created a dog robot, Aibo. Aibo is priced at $1,800 and acts as an actual dog with less maintenance. In the first three months of Aibo’s release in 2018, the company sold 11,111 units.
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In a report published by Grand View Research in 2016, Americans spent $66 billion on pet merchandise and services, a 10% growth from the previous year.
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Let’s start our list of 10 best pet stocks to buy now.
10. Freshpet Inc (NASDAQ: FRPT)
No of HFs: 25
Total Value of HF Holdings: $204 Million
The American pet food and treats company Freshpet, Inc ranks 10th in our list of 10 best pet stocks to buy now. Shares of FRPT jumped 128% over the last twelve months. During the fourth quarter of 2020, the company reported net sales of $84.5 million. For 2025, the company raised its target for regular customer count to 37% or 11 million.
In February 2020, the company announced plans of expanding its operations to Texas to meet the market’s growing demand for real fresh pet food.
9. JM Smucker Co. (NYSE:SJM)
No of HFs: 34
Total Value of HF Holdings: $580 Million
The American manufacturer of supermarket food JM Smucker Co also operates a pet food business including brands such as Milk-Bone and Meow Mix. The company offers a 2.96% dividend yield. During the 2020 fiscal first quarter, SJM’s pet products had the highest net sales at 38% of their total revenue. During the fiscal 2021 third quarter, SJM reported net sales of $104.4 million, a 7% increase driven by the company’s US and international growth in retail business.
According to our database, the number of SJM’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 34 hedge funds that hold a position in SJM compared to 31 funds in the third quarter.
In their Q4 2020 investor letter, Roubaix Capital LLC mentioned a few stocks, and JM Smucker Co. was one of them.
Here is what Roubaix Capital LLC said:
“Companies including J.M Smucker Company (SJM) have seen their sales accelerate to unsustainable levels that are not consistent with their mature end markets. We expect sales to slow and eventually give back some of the one-time gains caused by the unusual circumstances of 2020. Further, we question the sustainability of current peak valuations in the face of likely peak sales. We believe companies with such characteristics could face a combination of negative earnings revisions and lower valuations as the demand reality sets in this year. We also anticipate that companies that have benefited from consumers being homebound will see very challenging comparisons in 2021. No doubt, spending on home improvement and furnishing grew at unsustainable rates in 2020.”
8. Chewy Inc (NYSE:CHWY)
No of HFs: 38
Total Value of HF Holdings: $728 Million
The Florida-based online retailer of pet food and related products Chewy, Inc. ranks 8th in our list of best pet stocks to buy now. In 2017, PetSmart purchased CHWY for $3.35 billion. However, the companies later parted ways. UBS recently downgraded the stock, citing valuation concerns.
At the end of the fourth quarter, 38 hedge funds in Insider Monkey’s database of 887 funds held stakes in CHWY, compared to 46 in the third quarter. Eashwar Krishnan’s Tybourne Capital Management is the biggest stakeholder of this stock with 1.5 million shares, worth $143 million invested at the end of December.
Nelson Roberts Investment Advisors mentioned a few stocks in its Q3 2020 investor letter and CHWY was one of them
Here is what Nelson Roberts Investment Advisors said:
“In the consumer discretionary sector, we bought a position in Chewy (NYSE: CHWY). Chewy is the largest pet “e-tailer” in the world, offering the speed and convenience of e-commerce with the personalized service of a neighborhood pet store. The growing humanization of pets and focus on pets as family members have led to increased spending on pet care products and services. Chewy is benefiting from the pandemic, with record numbers of pets being adopted and people gravitating toward online shopping.”
7. General Mills, Inc. (NYSE:GIS)
No of HFs: 39
Total Value of HF Holdings: $952 Million
Founded in 1886, General Mills, Inc. operates food brands such as Cheerios and Haagen-Dazs. The company began its pet product business in 2018 when it acquired Buffalo Pet Products, Inc. for $8 billion. The company offers a 3.55% dividend yield. During the full year of 2020, the company’s global net sales increased 21% to $5.0 billion driven by the ready-to-cook food market.
With a $324 million stake in General Mills, Inc., Jim Simons’ Renaissance Technologies owns 5.5 million shares of the company at the end of the fourth quarter of 2020. Our database shows that 39 hedge funds held stakes in the company as the fourth quarter ended versus 36 in the third quarter.
6. Tractor Supply Company (NASDAQ:TSCO)
No of HFs: 39
Total Value of HF Holdings: $1.17 Billion
Headquartered in Brentwood, Tennessee, Tractor Supply ranks 6th in our list of best pet stocks to buy now. The company is a heavy-duty hauling farm maintenance business that supplies farm products. In August 2020, the company started operating its pet food and products e-commerce and physical store through their VICTOR Super Premium Pet Food. TSCO offers a dividend yield of 1.30%. On March 8, 2021, the company opened its new store in Bucks County.
At the end of the fourth quarter, 39 hedge funds in Insider Monkey’s database of 87 funds held stakes in TSCO. Robert Joseph Caruso’s Select Equity Group is the biggest stakeholder of the stock with 3.5 million shares, worth $492 million at the end of December 2020.
Wedgewood Partners mentioned a few stocks in its Q3 2019 investor letter and Tractor Supply Company was one of them.
Here is what Wedgewood Partners said about Tractor Supply Company:
“Tractor Supply Company’s net sales increased 6% with earnings per share up about 7% during the quarter. Tractor Supply Company lapped difficult comparisons both on a sales basis (2018 hurricane season) and profitability basis (2018 tax cut), so we would expect Tractor Supply Company to generate closer to double-digit growth over a multi-year timeframe. Despite the relatively in-line quarter, the stock sold off based on what we believe is unfounded fears about the Company’s exposure to employment in energy-levered regions. Unlike 2015, Tractor Supply Company has fewer customers levered to the fortunes of oil and gas. In addition, the slowdown in oil and gas activity over the past 12 months has been much shallower relative to 2014 – 2015.”
5. Elanco Animal Health, Inc. (NYSE:ELAN)
No of HFs: 43
Total Value of HF Holdings: $1.49 Billion
Headquartered in Indiana, United States, Elanco Animal Health, Inc. operates an innovative and product and solution company that aims to enhance animal health. The company was founded in 1954 and held its IPO in 2018 priced at $24 per share. Shares of ELAN soared 32% over the last twelve months. At the end of the fourth quarter, ELAN reported a 44% year-over-year increase in revenue to $1.1 billion.
With an $853 million stake in Elanco Animal Health, Inc., Scott Fergusons’ Sachem Head Capital owns 27 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 43 hedge funds held stakes in ELAN at the end of the fourth quarter, versus 21 funds at the end of the third quarter.
Mila Supinskaya Glashchenko/Shutterstock.com
4. Colgate-Palmolive Co (NYSE:CL)
No of HFs: 46
Total Value of HF Holdings: $1.51 Billion
Colgate-Palmolive Co was founded in 1806 by William Colgate. They own a wide variety of brands that aim to provide a healthier future for people and animals. Their pet nutrition product Hill’s reported $680 million in net sales in 2019. The company offers a dividend yield of 2.35%. During the fourth quarter of 2020, the company reported an increase of 7.5% in net sales brought about by recent investments in digital advertising and e-commerce.
As of the end of the fourth quarter, 46 hedge funds in Insider Monkey’s database of 887 funds held stakes in CL compared to 47 funds in the third quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the biggest stakeholder of Colgate-Palmolive Co with 11.9 million shares, worth $1.02 billion.
VGI Partners mentioned a few stocks in its FY 2019 investor letter and CL was one of them.
Here is what VGI Partners had to say about the stock:
Colgate has a large international exposure with 70% of its revenue generated from outside the US, including 50% from high growth emerging markets. Colgate’s global market share of toothpaste is a staggering 42%, up from 35% in 1995. The below chart also shows that Colgate’s global market share today is almost three times its nearest competitor. The brand’s share of some of the largest emerging markets is even higher, with Brazil at 72% and India at 50%.
Colgate’s high share of the toothpaste market in these geographies owes a great deal to the company’s decision to set up distribution early, providing a first-mover advantage. Market shares in toothpaste are generally quite stable as consumers show strong loyalty to the brand of toothpaste they grew up with. We believe Colgate’s emerging market exposure is a significant positive over the For personal use only long-term as growth in population and disposable income outpaces that of developed markets.
Colgate follows a strategy of long term premiumisation. Once it has established a leading market position, it slowly but steadily introduces superior products at a higher price point and gross margin. This progression is almost too slow to be noticed by customers but over many years has led to significant gross margin expansion for the business. Remember the original plain red tube of Colgate toothpaste that contained no teeth whitening, mint stripes or sensitive pain relief? You can still buy this at the local supermarket at a relatively low price, however Colgate has most likely traded you up to one of their more expensive products.
3. IDEXX Laboratories, Inc. (NASDAQ:IDXX)
No of HFs: 46
Total Value of HF Holdings: $26.6 Billion
Headquartered in Westbrook, IDEXX Laboratories, Inc. distributes products and services to veterinaries, dairy markets and livestock poultry. The company first listed on NASDAQ in 1991. Shares of IDXX soared 93% over the last twelve months. During the fourth quarter of 2020, the company reported a 19% growth in revenue driven by steady growth in their livestock products.
As of the end of the fourth quarter, 46 hedge funds in Insider Monkey’s database of 887 funds held stakes in IDXX, compared to 41 in the third quarter. Terry Smith’s Fundsmith LLP is the biggest stakeholder of IDEXX Laboratories, Inc. with 4.2 million shares, worth $2.11 billion. An insider purchased 375 shares worth $266 in August 2019. The stock is up 85% since then.
Baron Partners Fund mentioned IDEXX Laboratories, Inc. in its Q3 2020 investor letter.
Here is what Baron Partners Fund had to say about IDEXX:
“Shares of veterinary diagnostics leader IDEXX Laboratories, Inc. contributed to performance in the quarter. Veterinary visits continued to exhibit a “V” shaped recovery from the initial pandemic-related slowdown, with visits growing at double-digit rates. IDEXX’s competitive trends are outstanding, and we expect new proprietary innovations and field sales force expansion to be meaningful contributors to growth. Margins are increasing significantly. We believe margins can exceed 30% over time.”
2. Zoetis, Inc. (NYSE:ZTS)
No of HFs: 61
Total Value of HF Holdings: $2.38 Billion
The worldwide animal health company Zoetis, Inc. ranks 2nd in our list of 10 best pet stocks to buy now. ZTS offers a dividend yield of 0.67%. During the fourth-quarter revenue increased 8% to $1.8 billion. The company believes this growth will drive them to a robust 2021.
According to our database, the number of ZTS long-held hedge funds positions increased at the end of the fourth quarter of 2020. 61 funds hold a Zoetis, Inc. position compared to 58 funds in the third quarter. The company’s most significant stakeholder is William Von Mueffling’s Cantillon Capital Management, with 2.9 million shares worth $481 million.
1. Merck & Co. Inc (NYSE:MRK)
No of HFs: 82
Total Value of HF Holdings: $7.17 Billion
Merck ranks 1st on the list of 10 best pet stocks to buy now. The company offers vaccines and medicine. MRK operates its animal products under Merck Animal Health brand which was founded in 1921. In 2020, Merck Animal Health reported full-year sales of $4.7 billion. In February 2021, the company purchased PrognostiX Poultry Limited, a leader in the poultry development industry.
As of the end of the fourth quarter, 82 hedge funds in Insider Monkey’s database of 887 funds held stakes in MRK, compared to 80 in the third quarter. Irving Kahn’s Kahn Brothers are the biggest stakeholder of the stock with 731 thousand shares worth $59 million.
Saturna Capital Corporation mentioned a few stocks in its Q1 2020 investor letter and Merck & Co. Inc was one of them
Here is what Saturna Capital Corporation had to say about Merck & Co. Inc:
“Bristol-Myers and Merck benefited from low valuations, strong balance sheets, and attractive dividends going into the crisis, minimizing the negative fallout.”
Please also see Top 10 Large-Cap Healthcare Stocks to Buy now and 10 Best Healthcare Dividend Stocks
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Disclosure: None. 10 Best Pet Stocks To Buy Now is originally published on Insider Monkey.
