Zoetis Inc (NYSE:ZTS)’ results, though, speak wonders to a growing trend of pet domestication in American households. More than 60% of American households currently own a pet and a majority of those pet-owning households (91%, to be exact) now consider that pet a member of the family. This is an important aspect, as those households will do whatever’s necessary to ensure the health of their pet. Zoetis Inc (NYSE:ZTS), with a full line of preventative vaccines and disease treatments, is in line to see steady growth from this growing trend.
Furthermore, few pet owners actually have health insurance on their pets. This means higher margins for animal-focused pharmaceutical companies, since the money is coming directly out of consumers’ pockets instead of insurers’.
Bet against Zoetis Inc (NYSE:ZTS)? I’d give that idea four paws down!
Once you pop, you can’t stop!
Kellogg Company (NYSE:K) is certainly making Tony the Tiger proud, as its share price performance over the previous year has been nothing short of grrrrrrrrrrrrreat! But a doubling in short interest could signal that the good times are about to come to a crashing halt.
The impetus for Kellogg Company (NYSE:K)’s run has been its $2.7 billion all-cash purchase of the Pringles brand from The Procter & Gamble Company (NYSE:PG) last year. The deal was a win for both companies, as snack brands have been one of the few strong growth areas globally, helping offset weaker growth in Kellogg Company (NYSE:K)’s breakfast line. For The Procter & Gamble Company (NYSE:PG), it gave the company ample cash to revamp its marketing campaign and instill confidence in its core brands, including detergent Tide.
The concern I have for Kellogg is that we’re going to need to see a lot more than just acquisition-based growth. Kellogg has tried to transform itself from being just a breakfast company for years, but has been largely unsuccessful in doing so. With its comparable sales growth of just 2.2% last quarter, I’m not sure it merits a forward P/E of even 15.
Kellogg Company (NYSE:K)’s current valuation also assumes that food cost inflation will be nonexistent, which is something that history has shown is rarely the case.
I believe enough doubt exists in Kellogg’s current valuation to justify an increased level of skepticism.
This week’s theme is all about recognizing the difference between organic growth and acquisition-based growth. Merck & Co., Inc. (NYSE:MRK) and Zoetis Inc (NYSE:ZTS) both have the tools needed to grow their product pipelines from within. Kellogg Company (NYSE:K), on the other hand, may not be able to meet investors’ lofty expectations without going shopping for growth once again.
What’s your take on these three stocks? Do short-sellers have these stocks pegged, or are they blowing smoke? Share your thoughts in the comments section below.
The article Shorts Are Piling Into These Stocks. Should You Be Worried? originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool recommends Procter & Gamble.
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