Why It's a Great Time to Buy Pet Stocks

The pet industry boomed during the pandemic, and that momentum should continue for the coming years. After all, new pet owners will have to continue to feed their furry friends, and spending on pets is set to grow because of a number of other tailwinds.

In this episode of Upgrade or Topgrade recorded on Oct. 15, Fool contributors Jeremy Bowman and Parkev Tatevosian and Millionacres editor Deidre Woollard discuss opportunities in the pet industry and which stocks are poised to benefit.

Deidre Woollard: I think one of the things that's fascinating about the pandemic trends -- and I've talked about this with real estate, migration, and certainly I've talked about it with retail, and e-commerce -- but the pet boom is crazy. People talked about COVID puppies and all of that. There are some interesting stats that really bear that out. Daily Upside ran a newsletter this week that got me thinking about this, because they had stats from the American Pet Products Association National Pet Owners Survey. Over 11 million new households picked up a new pet during the pandemic. The interesting thing is, that means that 70 percent of us now own a pet, up from 56 percent back in 1998. Do both of you have pets?

Jeremy Bowman: I do. I have a small dog.

Parkev Tatevosian: Me as well.

Woollard: All right. I'm a cat person, but OK, I can work with this [LAUGHTER]. I wanted to talk a little bit before we get started talking about Chewy (CHWY -0.64%) and some of the others, just some amazing stats from that American Pet Products Survey. In 2020 we spent $103.6 billion on our pets, up from $97 billion in 2019 and $90.5 billion in 2018. When we think about these pet stocks and things like that, it's important to know where it breaks down. You think about all the things that we have, that we spend money on with our pet; pet food and treats, $42 billion. Supplies, over-the-counter medicine, pets themselves, that's another $22 billion. That current product sales, that's 31.4 billion. Then another $8 billion in other services like boarding, grooming, insurance, training, pet sitting, and walking. For this year, it'll be an estimated $109.6 billion, and $44 billion of that will be spent on pet food and treats. $23 billion on supplies and over-the-counter medicine. $32 billion on that caring product sales and then $9.7 billion in other services.

I think the other services sector is something that we're going to talk a lot about today, because one of the things that I noticed listening to the different earnings calls and investor day presentations is that there is as we move from the "work-from-home with our pets" environment to the "back to the office and our pets are home", what we spend and how we spend is going to be different. Especially now that we're maybe spending more on things like dog walking or grooming or things like that. The thing I find really interesting about the sector is there's so many different things that feed into the ways that we take care of our pets.

Bowman: Absolutely. Yes. You were talking about the work-from-home trend, I think one thing too that we forget about, we all got pets when we were forced into this social distancing time. But if you're working from home, it's going to make it a lot easier to have a pet, and you're probably going to want one to keep you company, maybe when you're just sitting on the couch, just typing on your computer or whatever. One thing I like about pet stocks is that there's so many tailwinds that the industry has, and I think that's a big one that we don't really even think about or haven't even been talking about that much.

Tatevosian: Great points Jeremy. I will just add to that. We did add a lot of pets during the pandemic. An interesting thing about that is, pets are a long-term commitment for most people. Even though the spending on pets increased just during the pandemic, pet parents are going to be spending on those pets for at least the next five, 10, maybe even 15 years. Food, materials, medication, a new bed maybe, all of those things are going to now be spent on all of those pets that we added just in this last year and a half.

Woollard: That's a really interesting point too, because when we talk about pets and the different stocks that we'll go through today, there's the life cycle of the pet. You have to think about it in some ways. It's a little bit like healthcare, because in the beginning when you get a pet, there's that initial spend. There's dog beds, or collars, all that stuff. First vet checks. Then it's kind of consistent over the years, and then toward the end of the pet's life you start spending more on healthcare, medicine, maybe prescribed food, which is a bigger business than I knew. Although my cat is actually on prescribed food, but that's because he's fat. But there's just more and more as the pet ages, and then if you bring in another one. It's this really interesting recurring revenue thing that the companies that we're going to talk about today have to have to tap into. The ways that they are doing it, is all slightly different and really interesting to me.