Warming Weather; Heating Economy; Pets

Hey Influence Traders,

I hope that everyone had a good weekend.

Except for an emergency trip to the vet for Smoky the cat, mine was pretty uneventful.

(He’s fine, by the way.)

The weather has calmed down and the vaccine rollout seems to be taming COVID.

And the markets continue to run …

COVID

The vaccine rollout seems to be calming the COVID storm.

The CDC just reported that over 96 million vaccine doses have been delivered across the U.S.

77 million doses have been administered.

Nearly 20% of U.S. adults – over 50 million people – have received one or more doses.

This is moving us towards herd immunity and to the economy opening more quickly.

Best Day Since June

One thing that is not calm is the broad market.

The S&P came out of the gates swinging on Monday.

It’s 2% rise was its best day since last June.

The Markets are Not the Economy – but Growth Is on the Horizon

Everyone knows that the markets are not the sole driver of economic growth.

But with the impending stimulus and other spending bills on the horizon, growth prospects are on the rise.

Some economists started the year calling for 4.2% growth …

That number was raised shortly thereafter by Bank of America to 5% …

I guess the spending is being taken seriously, because last week Goldman Sachs pegged GDP growth at … 7%! 

Dampening Effects?

Yes, some such as Sen. Elizabeth Warren and her wealth tax proposal, are trying to dampen growth,

She unveiled her “Ultra-Millionaire Tax Act” on Monday, which would impose a 2% annual tax on the net worth of households and trusts between $50 million and $1 billion, and an additional 1% for net worth over $1 billion.

The bill, which has broad support from the liberal wing of the Democrat party, is anticipated to bring in $3 trillion in revenue over 10 years.

While possible to pass in the House, the bill has little hope in the Senate.

Run Hot

But on the whole, DC seems ready to allow the economy to make a #PowerMove and run hot.

The House passed its $1.9 Trillion COVID relief bill, and while its prospects look dim to be passed untouched through the Senate, some early concessions have been made to let it through.

A pending hot economy, inflation and potentially rising rates are impacting many sectors.

When Ripples Collide

A trip to the vet, the pandemic, people with cash in their pockets and moving to ecommerce got me thinking …

What About Pets?

Pet ownership increased in the US by more than 10% during the pandemic …

The global pet food market hit almost $97 billion in 2020 …

It’s projected to register a compound annual growth rate (CAGR) of 4.8% through 2026.

While the pandemic had a negative impact on supply chains that caused the pet industry to suffer supply and cash flow issues early in 2020, the segment saw steady demand for growth through the end of the year.

People around the globe adopted more pets in an effort to gain companionship during the lockdowns …

And that required more supplies.

At the same time, suppliers and buyers shifted their focus from retail stores to e-commerce platforms.

It’s Not Just About Traditional Pet Supplies

Some big names in pet food and supplies have garnered a lot of attention recently and have seen strong growth in share prices:

  • Chewy.com (TICKER: CHWY): E-commerce supplier of pet medications, food and supplies has seen a 248% return this past year and continues to solidly perform.

  • Freshpet (TICKER: FRPT): Pet food and treat manufacturer and distributor has seen a 133% return this past year and is still moving up.

But people are moving to treat pets more like they treat themselves (and better, in some cases), with a greater focus on healthy eating and preventative medicine.

With disposable incomes on the rise, pet owners can afford it.

Earlier this year, I began watching Zomedica (Ticker: ZOM), a development-stage diagnostic and pharmaceutical company for pets with a focus on the needs of clinical veterinarians.

By the way, within the $100 billion U.S. pet market, veterinarian and related services account for 1/3 of all spending.

The problem with ZOM is that it has had a meteoric rise in the past quarter fueled by the impending release of its first products and a Robinhood push …

In fact, over the past year ZOM is up over 900%!

While people are still high on it, there does not seem to be much runway left.

Yes, it is launching its first product shortly, the Truforma diagnostics system, but ZOM does not own the patents to it and has to lease the IP, which will dampen revenues.

In addition, ZOM is playing in a niche market – estimated to be under a $3 billion total opportunity.

I will continue to keep an eye on ZOM, though, and if there is a pullback prior to its product launch I might put on a small trade.

Pet Insurance

After we got back from the vet, my wife filled out pet insurance paperwork.

This made me realize that all of this new found pet “humanitarianism” has to be compensated.

Trupanion (Ticker: TRUP): an established leader in pet medical insurance. TRUP’s enrollment increased 33% in 2020 over the prior year, with almost 863,000 pets enrolled in plans. This helped to drive its revenue up 31% year over year to $502 million, which brought it close to breakeven.

Like other pet companies, TRUP saw a healthy rise over the past year (+227%), but it has had a 10% pullback over the past month and has growth prospects.

There are a number of large competitors in the space, such as IDEXX Laboratories (Ticker: IDXX) and Zoetis (Ticker: ZTS), which are ripe to have market share taken.

TRUP’s CEO stated in the company’s Q4 update that, “We’re set up well to capture the growing opportunities within our large, underpenetrated market," which the company estimates to be at $32.8 billion.

But one of the big reasons I like TRUP is that Aflac (Ticker: AFL) recently bought a 10% stake.

Leveraging AFL’s market position should help TRUP gain market share in the U.S. and global markets.

Cutting Through the Noise for You.

Frank

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.