7 Best Pet Stocks to Buy in 2022

Pet stocks will keep purring during an economic downturn.

Demographics show that our pets are becoming a more integral part of our families, which means the companies providing for their needs are becoming increasingly profitable. So, pet stocks are a worthwhile consideration for any investor’s portfolio. “We know that there are more pets than children, and we know that everybody got a pet in the pandemic,” says Simeon Hyman, head of the investment strategy group at ProShares. “If you’re worried about economic weakness, that’s not going to be reflected in pet stocks.” In addition, some pet companies are benefiting from pet owners’ increased pampering of their furry pals, including expensive treatments and other lifestyle accommodations, says Debbie Wang, senior analyst at Morningstar. Has the world found another recession-proof market? If your cat could talk, she’d approve these seven best pet stocks to own in 2022.

Zoetis Inc. (ticker: ZTS)

Many animal health companies used to be buried within larger human health companies, Wang says, but this is rapidly changing. The change is being led, in many respects, by Zoetis. According to Wang, “Zoetis is the undisputed leader in the global animal health industry.” It’s the largest holding in the ProShares Pet Care ETF (PAWZ), making up 11% of the entire portfolio. Hyman says the company just acquired Basepaws, which provides DNA testing for cats, a reminder that everything happening in medicine “on the human side is happening on the pet side” as well. In addition to the recent acquisition, “Zoetis sports one of the widest moats in animal health, thanks to its cost advantage and intangible assets,” says Wang.

Idexx Laboratories Inc. (IDXX)

Idexx Laboratories focuses primarily on the veterinary diagnostic lab business. In this space, Wang says, the company has dug a “narrow moat.” However, she says that the company is well positioned to benefit from two key trends: the overall increase in pet ownership and pet owners’ greater willingness to spend more on their animals. Hyman says he’s most impressed with how IDXX is laser-focused on its relationships with veterinarians. Individual relationships are important in the industry, and IDXX’s investor presentations concentrate on how the company is developing these key relationships. IDXX is PAWZ’s second-largest holding, at 10% of its overall portfolio.

Chewy Inc. (CHWY)

Chewy provides pet food and supplies directly to consumers through its e-commerce business. Sean Dunlop, equity analyst at Morningstar, says Chewy’s founders wanted to compete with Amazon.com Inc. (AMZN) in a category that was “rife with inefficiencies.” Hyman adds that Chewy’s autoship revenue, or revenue generated by automated memberships for routinely ordered items, represents 72% of the company’s total revenue. High autoship penetration allows the company to defray fulfillment cost pressures compared with its larger peers, Dunlop says, as fewer split shipments makes inventory management easier. During the company’s first-quarter earnings call on June 1, CEO Sumit Singh said Chewy’s “value proposition remains as compelling as ever.” On the same call, Chief Financial Officer Mario Marte said the company “continues to execute in the face of unprecedented macro volatility to deliver strong top-line growth and improving sequential profitability.”

Freshpet Inc. (FRPT)

Providing natural meals and treats for cats and dogs, Freshpet delivers its products through traditional brick-and-mortar retailers as well as online. During the company’s first-quarter earnings call on May 2, CEO William Cyr said that since “the world we are operating in has an unusually large amount of economic uncertainty in it,” Freshpet intends “to operate with low leverage until the business is generating strong cash flow, capable of funding our capital expansion plans from operations.” CFO Heather Pomerantz added on the call that company management is “very encouraged by the strong start to the year and even more encouraged by what it says about our resiliency.” A group of 16 analysts surveyed by data service Koyfin rate FRPT a “strong buy,” on average, with a return potential of about 126% over the next 12 months.

Petco Health and Wellness Co. Inc. (WOOF)

A one-stop shop for pet owners, Petco Health and Wellness offers veterinary care, grooming, food and other pet supplies at its approximately 1,500 locations in North America. On the company’s first-quarter earnings call on May 24, CEO Ronald Coughlin said that “if our Q1 results demonstrate nothing else, they show our ability to execute and deliver without sacrificing progress against our long-term strategic road map.” CFO Brian LaRose said the management team remains “confident in our guidance in the mid to long term” and “committed to maintaining our strategic investments to deliver expected results for the full year and beyond.” Thirteen Koyfin-surveyed analysts forecast an average return of about 50% on WOOF shares over the next 12 months.

PetIQ Inc. (PETQ)

With a market cap of only $519.2 million, PetIQ is by far the smallest company included in this list. PetIQ provides prescription and over-the-counter pet medications, which run the gamut from flea, tick and other specialty medications to behavior-management treatments such as topical ointments, chewables and oral tablets. In the company’s first-quarter earnings call on May 4, CEO Cord Christensen said “PetIQ is well positioned to continue delivering increases in our net sales and profitability, as well as generate solid cash flow.” CFO Zvi Glasman said company leaders are “pleased with our start to the year and remain optimistic about our growth in 2022 and beyond.” Six Koyfin-surveyed analysts rate PETQ stock a “strong buy,” on average, and forecast a 76% return for the company over the next 12 months.

Trupanion Inc. (TRUP)

What Trupanion really has going for it is the big uptick in interest in pet insurance over the past year, Hyman says. The global pet insurance industry is already worth an estimated $7.8 billion, according to a study by Future Market Insights. It could have a compound annual growth rate, or CAGR, of 11% over the next eight years, reaching a value of $38.8 billion by the end of 2030, FMI reports. As a major provider of pet insurance across the Americas and Australia, Trupanion is poised to benefit from this growth. Eight Koyfin-surveyed analysts forecast about a 39% return on TRUP stock over the next 12 months, rating it a “buy” overall.

7 best pet stocks for sniffing out gains in a downturn:

— Zoetis Inc. (ZTS)

— Idexx Laboratories Inc. (IDXX)

— Chewy Inc. (CHWY)

— Freshpet Inc. (FRPT)

— Petco Health and Wellness Co. Inc. (WOOF)

— PetIQ Inc. (PETQ)

— Trupanion Inc. (TRUP)

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7 Best Pet Stocks to Buy in 2022 originally appeared on usnews.com

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