The humanization of pets has been a major boon for all pet-related industries as more people are treating their pets just like family members. Americans spent $60.28 billion on their pets in 2015 and that is expected to jump to $62.75 billion this year, according to American Pet Products Association.
On Monday, Real Money introduced a handful of pure plays in the pet industry that are capitalizing on the success of this trend. But there are also some diversified companies that have a significant amount of pet exposure -- something investors should love as much as their own pets.
Central Garden and Pet (CENTA) is an obvious company at play in the pet industry, given its name. But J.M. Smucker (SJM) , Henry Schein (HSIC) , and Clorox (CLX) are lesser known major players and have been befitting from this strong, secular trend.
Smucker completed its approximately $6 billion acquisition of Big Heart Pet Brands in March 2015. Big Heart's portfolio of brands includes: Meow Mix, Milk-Bone, Kibbles 'n Bits, Natural Balance, Milo's Kitchen and more.
In a 2016 investor presentation, Smucker highlighted several trends that are driving growth in the pet food segment. Approximately 63% of dog and cat households are child free. One in five people reportedly would prefer to spend Valentine's Day with a pet rather than their partner, showing a deeper bond. And, three quarters of pet "parents" say their pets should "get the best care possible, regardless of cost."
Currently, Smucker's Big Heart Pet Brand contributes nearly a third (29%) of the entire company's annual net sales. Since the acquisition, the stock has grown more than 35%, and is up 25% for the calendar year so far. Smucker is set to report fiscal 2017 first-quarter results on Tuesday, Aug. 23. Analysts are anticipating earnings of $1.74 per share on revenue of $1.89 billion, according to Thomson Reuters.
Another big diversified player is Henry Schein. Perhaps best known as a distributor of dental supplies, it also has an animal health unit that supplies veterinary clinics all over the world. The animal health unit represents 27% of the company's sales. The company reported strong fiscal second-quarter results on Aug. 4, driven by sales in medical, animal health and technology. For the period, animal sales totaled $853.6 million, up 14%.
"The animal health market is a healthy market around the world, driven by the middle class and, as we have said before many times, the baby boomers," said CEO Stanley Bergman during the latest quarterly conference call with analysts. "They are buying more pets."
Then there is Clorox, which has two cat litter products: Scoop Away and Fresh Step. While the company does not break down the sales for its animal-related products, Vice President of Investor Relations Steve Austenfeld said during an Aug. 3 conference call with analysts that the cat litter segment grew in sales and volume for the quarter. The recent launch of Fresh Step with Febreze contributed to market share growth for the period. CEO Benno Dorer added that Clorox has "more innovation to come in fiscal year 2017 to support what is now a tailwind in cat litter." Analysts with KeyBanc said in an Aug. 4 research note that household volume growth hit 7% on new product innovation in cat litter.
Finally, Central Garden and Pet, which is a smaller company ($1.27 billion market cap) but generates roughly half its revenue from pet-related products, which include toys, carriers, habitats and accessories.
Pet net sales for the 2016 fiscal third quarter, which were reported on Aug. 2, increased 20.6% to $287.2 million from the same period a year prior. The segment's organic sales grew 4.3%, driven by higher sales of other manufacturers' products as well as strength in the professional and wild bird feed category. But the operating margin decreased slightly to 13.5% -- a 30-basis-point decline compared to a year ago.
While the stock has gained approximately 90% in 2016, Real Money technical analyst Bruce Kamich sees caution in the charts. In the daily chart, Kamich said prices are in an uptrend and above the rising 50-day and 200-day moving averages. But when looking at the daily volume histogram, he said that the volume has not expanded on the rally.
"Technical analysts like to see volume confirm or move in concert with the price action with more people becoming investors," said Kamich. "This does not seem to be happening with CETNA and it makes us cautious."
Kamich also said the weekly chart below provides some more clues that suggest caution. "Yes, prices are above the rising 40-week moving average line but here too the weekly OBV line has not made a new high to confirm the new price highs," Kamich said. Furthermore, the chartist said that the MACD oscillator is above the zero line but is narrowing -- which is a heads-up that something is changing. While CENTA could move higher, Kamich said there is a risk that prices correct back down to the $17 to $18 area.
Investors looking to get involved with this secular trend may be looking for an exchange-traded fund, considering the variety and range of pet-related stocks. While there is no singularly focused pet-related ETF, it might be time for one considering the way the stocks are responding to the humanization of pets.
Regardless, this trend is not going away anytime soon. On CNBC's "Mad Money" TheStreet's Jim Cramer said the pet theme is a "fabulous place to invest on any (market) scare, whether it be from the Fed, overseas or certainly from the madness of the upcoming presidential election."