Depending on how well advisors know their clients, the former might be hearing about post-pandemic additions to latter's families and, no, that doesn't mean children.
Rather, it means pets. Yes, higher pet adoptions are a result of the coronavirus pandemic. Take it from a dog owner of more than 10 years that's worked from home longer than that: It's nice to have companionship when you're being forced to shelter-in-place due to a global health crisis, even if that companionship doesn't speak.
Data confirm pet adoptions surged during the darkest days of the pandemic. In the spring of 2020, adoptions jumped by as much as 70% while shelter receiving of dogs and cats tumbled 40% and 33%, respectively. With that come investment implications of the practical and approachable variety. Moreover, of the relevant variety to clients.
Of course, clients that have pets are familiar with stocks such as Chewy (NYSE:CHWY) and other brick-and-mortar and online pet retailers. However, the real growth could be with pet healthcare equities.
Healthy Outlook for Pet Healthcare
While some adopters of pets during the pandemic have since returned those pets, the good news is plenty of pets adopted during the worst days of COVID-19 now have permanent homes and with that comes the need for more vet visits and prescriptions.
“Idexx Laboratories (IDXX) and Zoetis (ZTS) have been able to capitalize on this rising demand, and we have dialed up our cash flow projections for them. We believe their economic moats--rooted in intangible assets and cost structures--are intact,” says Morningstar analyst Debbie Wang.
She cautions that those names are richly valued. Fair enough, but the same is true of plenty of over growth corners of the healthcare space, be it genomics stocks or medical device firms or others. Thing is pet care equities are more growth fare than say human equivalents, which would be blue-chip pharmaceuticals companies.
“Despite pandemic pet adoption that was more muted than we’d originally expected, animal healthcare companies managed to capitalize on rising demand, even though supply looked constrained through much of last year,” adds Wang. “As a result, Idexx saw its 2020 companion animal segment increase 13% year over year, while Zoetis delivered 31% revenue growth from cats and dogs in the trailing 12-month period.”
The Ups and Downs for Pet Investing
Stocks like Idexx, Zoetis and others in this space are subject to some of the same trends as their human counterparts, including – believe it or not – aging populations and the need for more advanced, pricier care.
Wang notes that as vet bills and prescription costs increase, pet owners could look to keep spending on a short leash. No pun intended. As is the case with humans, that's easier said than done. If anything, it's more amplified with pets because there's really not much in the way of elective procedures.
Take it from someone that spent $1,500 this summer to have one of his dog's teeth pulled: If your furry friend needs care, you're going to get it and while that usually subtracts from your wallet, it's additive to the pet healthcare investing thesis.
Pet health insurance is a thing and it is investable. To the latter point, it's a niche that's forecast to experience some impressive rates of growth.
“We think greater penetration of pet health insurance would allow pet owners, especially dog owners who face significantly higher vet spending, to absorb the growing medical bills for longer,” notes Wang. “This could help sustain the longstanding 8% compound annual growth rate in pet health spending through the medium to long term.”
No one is saying a client should overload on pet care stocks, but it's a relatable market segment and one with ample opportunity.