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“Pet Profits: Ride the Animal Healthcare Boom on this Top-10-Potential Stock”

The latest pitch from Roadrunner Stocks starts out, as do many “small cap growth” and “breakout” stock newsletters, with the story of Monster Beverage (MNST) — the top stock of the last decade, and for many years the favorite idea of every momentum stock lover.

And like the rest of us, Jim Fink at Roadrunner Stocks is looking for the next Monster (or next Apple, or Green Mountain Coffee, or Deckers) to give investors gains of several thousand percent or more (Monster went up more than 20,000% over the past ten+ years).

Presumably the plight of small cap growth investors will continue to be that they must kiss a hundred frogs for each prince they aim to discover, but that doesn’t make the search less fun. So what stock is Fink teasing as his current favorite? Here’s some of the ad to give you a taste:

“Now is the time to stop reading about the good fortune of others, and write your name into the NEXT success story.

“My NEW small-cap pick is perfectly positioned to appear in the NEXT top-10 list.

“Here’s why you need to find out more about this stock…

“It’s prepared to absorb the billions that are suddenly being poured into the pet care industry.

“In today’s world, pets have become as beloved as children.

“The amount of emotional – and financial – affection that childless couples, busy executives and well-to-do retirees are heaping on their favorite animals is amazing.

“People are spending thousands on pet food and pet care, paying tens of thousands to animal boarders and dog walkers, and even naming their pets as heirs to their estates in their wills.”

Spending on pets has certainly risen over the years, as even the Gumshoe pocketbook can attest (anyone else have the emergency vet on speed dial?) — but that’s been true for a long time and it doesn’t mean that all pet-related stocks go up all the time. Here are the trends that catch Fink’s attention (or his copywriter’s, at least):

“This trend is bringing in a whopping $58 billion to the pet care industry every year, up from less than $17 billion in 1994.

“Pet ownership has tripled since the 1970s. The pet population is growing faster than the human population.

“Veterinarians are major piece of this industry. And they’re piling up profits as they try to keep up with the rapidly increasing demand of luxury-level service.”

And apparently it’s something to do with veterinary care that we’re seeking here. He says that the growing adoption of pet health insurance is helping the best vets and improving veterinary facilities. More from the ad as we suck up all the clues we can:

“Over $15 billion will be spent on veterinary care this year – and most of this money will go to the vets that offer the best care and facilities.

“And all of that money is up for grabs.

“Enter my NEW small-cap pick, as it corners the exploding animal healthcare market…

“This company was one of the first to spot the upswing in spending on pet healthcare, and their goal is simple: offer established vets the chance to join their growing network of modern, attractive pet healthcare facilities.

“At last count, they now own over 600 animal healthcare centers. These locations offer the best animal healthcare options available – cutting-edge treatments like feline radiation therapy, canine bone-marrow transplants and canine hydrotherapy….

“My NEW small-cap pick is profiting from every piece of the pet healthcare pie…

“In addition to direct franchises, they offer Web, client and consulting services to busy independent vets. They also have a business that offers X-ray, imaging and diagnostic services as a third party to small vets without full-scale facilities.

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“The founders of this company all come from the human healthcare sector. They previously owned a very successful chain of human outpatient clinics, but felt future growth was stifled by low margins and complicated politics. So they switched to animal healthcare – and they haven’t looked back since.”

So who is it? We feed all those little nuggets into the gaping maw of the Mighty, Mighty Thinkolator and learn that this is … VCA (ticker WOOF — former name VCA Antech).

WOOF was a big growth name a decade ago as they were just starting on this journey to build a big network of animal hospitals and veterinary clinics — that stalled during the financial crisis and was a bit slow to recover, but the stock has been on a upswing again this year and is now near the 52-week high at about $37 (though it’s still a good 20% down from the 2007 peak). They are priced for growth, they continue to grow by acquiring new hospitals, and they report… today. So don’t rush into anything.

Analysts are expecting WOOF to boost earnings by a little under 10% both this year and next year, and they’ve been right on target with the quarterly earnings estimates for the last couple quarters, and the stock is right now trading at about 18X next year’s estimated earnings… so it’s not a crazy momentum growth stock, but it is priced at a premium so investors are expecting them to grow earnings faster than the market.

I am no expert on veterinary economics, to be sure, but there was a large study a few years ago that examined the decline in pet health spending and blamed it in part on the recession (though not definitively), so while the trend of growing pet ownership and growing pet spending seems pretty intact over the long term that doesn’t necessarily mean that vets are going to always rake in more money each year than the year before — there’s a lot of pet spending outside of the veterinary clinic, too, and probably a big difference in spending among different economic classes that can’t be smoothed out by vet health insurance. Perhaps as big an impact on the size of WOOF will be the generational transfer of veterinary hospitals as the baby boomer vets retire — the way they grow is generally by buying up existing practices or partnering with those practices, and in large part the appeal for independent veterinarians is as a “retirement strategy.”

But like I said, they report their quarter in an hour or two and I have no idea what it will look like — they haven’t surprised either up or down in the last two quarters, and analyst earnings estimates have not been changing, so if you like this one you can probably just sit in on their conference call and start to get familiar with them this evening without worrying that you’re going to miss a huge move overnight. If you like (or dislike) what you see from WOOF, let us know with a comment below.

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dcohn
Member
July 24, 2014 4:43 pm

Just an FYI related to VET Bills going up.
Cats should never be fed DRY FOOD of any kind. This comes from the inventor of a method of curing/maintaining diabetic cats called TR (Tight Regulation). The diet is key and she suggests feeding RAW CHICKEN and added vitamins specific for cats or at minimum wet canned food that has no gluten, corn starch or grains and is mostly meat or meat by products. Like Fancy Feast Classic flavors. Cats are Obligate Carnivores meaning they require MEAT to live. Add carbs to their diet and they will get FAT and sick. Diabetes, Hyper Thyroid and Kidney disease being the three most common illnesses.
Dogs are similar but my experience is with Cats so I will not give my opinion on best diet though I have heard pretty much the same thing but use Dog Vitamins.
Platinum Performance Feline was recommended to add to the raw ground chicken with gizzards, heart, liver and egg. ALL SERVED RAW NO COOKING. Cats digestive tract is straight line. Salmonella is unheard of affecting cats though I am sure some vet has claimed it has occurred. Vets are trained in schools 100% backed by Pet Food companies so they are not taught what they need to keep your animals well. The Vet is Elizabeth M. Hodgkins, D.V.M., Esq. a great person and great friend.

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Deborah G Flynn
July 24, 2014 5:32 pm
Reply to  dcohn

OK this answer is Waaaaaaaaaaay to jaded and no accurate. My husband is a 40 year practicing Veterinarian and while some think the “raw” diet [primarility “alternative” ppractitioners there are safer diets. Secxond I am totally offended by the remark that Veterinarians don’t learn properly because somehow the Aleternative [read that homeopathic] practitioners are better. THZEY have all the answers and we are POISONED as well as our animals because of big money interests running the Vet programs. Soory HOGWASH> They do fund some research but they DON”T pay off the schools or the Doctors with tainted money. Third ANtech and VCA did buy up a lot of hospitals and labs but you know who is the wockedest price gougers? THEY are. They have formulas for extracting as much cash out of people as possible in poennies and dimes so they don’t “FEEL” the pain. They have expert marketers. The draw is they provide a complete Hospital that many young vets coming out of school could never afford BUT THEY are in control of approved practice,drug prices,billing and oh yes more than 50% ownership. You just don’t know what you are talking about. Cats can suffer greatly from a raw diet because they have evolved into pet staus not wild status. Owner of 19 rescued cats here and a very busy Husband.

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Travis
Member
Travis
July 24, 2014 5:33 pm
Reply to  dcohn

If nothing else by the above post, pet owners are passionate and will out spend any recession!

gguy
Guest
gguy
July 24, 2014 5:41 pm
Reply to  Travis

I love the sidebar discussions on your site Travis

dee hee
Guest
dee hee
July 24, 2014 6:13 pm
Reply to  dcohn

who cares ?

hipockets
July 24, 2014 6:24 pm
Reply to  dee hee

All pet lovers care.

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Rusty Brown in Canada
Member
Rusty Brown in Canada
July 26, 2014 9:59 am
Reply to  dcohn

I recall reading somewhere that dog food which is high in rice as a filler, and therefore high in carbohydrates, will give a dog diabetes eventually because the starch breaks down into sugars, which they cannot digest. I suspect the same would apply to wheat, oats etc.
By the way, all canned pet food is cooked. It has to be in the canning process, to destroy any living organisms inside the sealed container.

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William F Tilson
Member
William F Tilson
July 26, 2014 6:29 pm

American corporations which manufacture the prepared food products found on every grocery store shelf in our country have been systematically poisioning our population for decades, Do you think the diabetic crisis in this country is because children have emotional eating problems and parents are stupid ? My reading leads me to believe the cause is the food choices we have and our propensity to eat prepared food or fast food junk – the two major food groups in this country ? Try sugar and preservatives. You think a corporation will be more altruistic because it produces dog food ? Probably not. If they can make it on the cheap and get you to buy it, they don’t care if it kills your pet or not. Also, I an not a veterinarian, but anyone who reads anything other than People magazine know that feeding your pet raw meat is a really bad idea. Hell, I would not eat raw oysters on a bet these days. How many food recalls have there been in the last five years because of some deadly bacterial problem that explodes in some corporation’s food processing plant ?

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john
Member
john
July 27, 2014 9:45 pm
Reply to  dcohn

My cat has eaten only dry food for the past 12 years. She won’t eat anything else. I have tried fish ,chicken,beef,turkey etc and she just walks away.

Robert
Guest
Robert
July 24, 2014 7:00 pm

Our last cat lived 16 years and weighed 16 to 18 pounds depending if it was winter or summer. He was nice and lean and never fat. He was an indoor outdoor cat and ate dry food from kitten to grave supplemented by the occasional gopher or quail.

if you want to use only dry food then Quality dry food is the key.

24jmp93
24jmp93
July 24, 2014 7:42 pm
Reply to  Robert

Sorry to be the bearer of bad news, but an 18 lb Bobcat is lean. A 16 lb. domestic feline is NOT. JMP, DVM

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meassassin
August 20, 2014 8:09 pm
Reply to  24jmp93

How about a 22lb F2 Chausie?

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quincy adams
Guest
quincy adams
July 24, 2014 9:43 pm

As most of the discussion here is about cats, perhaps VCA Antech should have better chosen the ticker MEOW. I’ve cared for many pets, canine and feline. They all lived long and happy (to the best of my knowledge) lives and none of them were ever fed raw food. None of the dozen or so vets I’ve used have ever recommended anything other than good quality dry food for them. More to the point, most of these vets were dedicated to providing the best care possible at reasonable cost and would never consider selling out.

c193
c193
July 24, 2014 10:01 pm

Well I’ll tell my little cat story. My cat was quite overweight (dry food) and the vet said to put him on Purina One Weight Control. (I believe I told her I objected to wet food due to convenience.). He gained about 4 more lbs! I changed to Purina One Protein and he lost several pounds, ending up smaller than the original weight. That proved to me that carbs should not be the center of a cat’s diet, or ours!

The problem to me of VCA as an investment is that there is a limit to how much people can afford to spend on pets. And we are almost there. A vet bill of $150 to $300 just starts getting painful. It can get to be $1000+ if the animal has a complicated medical condition.
I think people will have to make choices, such as how many animals they can afford. There gets to be a point of diminishing returns-not for lack of love for the pets, but due to other financial obligations.

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David B.
David B.
July 24, 2014 11:25 pm

I love animals, dogs especially, but find some cognitive dissonance that what we spend per capita in the U.S on our pets exceeds the GDP of many countries. On the other hand, beats the heck out of what is wasted on tobacco products and gambling!

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soksniffer
soksniffer
July 25, 2014 12:24 am

My cat’s breath smells like cat food. –Ralph Wiggum
Cat owners… sheesh. Anyway, WOOF beat their revenue estimate by $0.01 and the stock went down by more than 1%, for whatever that is worth. Also, not sure how this would affect a pet HMO(?) one way or the other, but I recall seeing an article in the last week or two about possible federal regulation of the pet insurance industry.

For the vets on this forum, I’m curious (as a cat…?) as to how you feel pet networks will affect your industry. Will costs go down? Profits up? Human health networks seem to have benefited from shared cost of liability insurance, but do veterinarians have the same concerns with lawsuits?

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motorhead
motorhead
July 25, 2014 12:52 am

The real secret to your cat maintaining its weight is more exercise. Upper body one day and lower the next.

greggo

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Kevin
Member
July 25, 2014 5:29 am

I love my pets But.
A good friend has spent almost $8k on his dog this year.
I love my car, if it was going to cost me $8k this year to keep it running…
Time for a new one…

takeprofits
Irregular
July 25, 2014 2:28 pm
Reply to  Kevin

Subtle way of making the point also addressed by C193 and Dave, the simple fact is that many middle class income earners, no matter how much they love their pets, whether cats or dogs, simply can not afford vet bills of hundreds of dollars. Recently a famous billionaire, (Kevin O,Leary) On either Shark Tank in the U.S. or Dragon’s Den in Canada said it is crazy for people to spend thousands on pets when they can be replaced for very little, which did not go over very well with pet lovers. In other words he as a billionaire is pragmatic enough that he would not spend more than the replacement cost of an animal.

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Scott715
Member
Scott715
July 25, 2014 7:08 am

Wow! Not one single comment about the actual value or growth potential of the stock. Looks like a steady grower to me but not something that will go through the roof overnight.

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Patsy R
Guest
Patsy R
July 25, 2014 10:23 am

We just finished paying over $5000. for surgery for our 18 yr. old cat’s cancer and chemo. We also pay Delta $200 each way take her on our extended vacations. I had never heard of VCA until our emergency trip there last March. All staff were caring and helpful. Both the surgeon and the oncologist met with us or called us regularly. I don’t think their prices were out of line. Given our experience with them, I should check out their stock. If it is worth any investment money, maybe we can get some of our cat’s medical costs back.

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stevemack70
July 25, 2014 3:05 pm

I thought I figured this one out 2 weeks ago and bought some. That Travis confirms my first successful guess sets my tail a waggin’.

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reggits
Irregular
July 25, 2014 3:08 pm

Up almost 4% today. How to interpret that?

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carbon bigfoot
Guest
carbon bigfoot
July 27, 2014 8:25 am

Dogs are GOD’s gift to man. Unconditioned LOVE and LOYALTY. Lucky to have two pure bred rescue dogs. One a six year old cocker spaniel, the other a border collie. Only feed them MEAT and cut green beans ( wash off the salt ). Constant companions smart than most humans. Don’ t buy or rescue a Border Collie unless you have the time. Best explanation is at GlenHighlandFarm.com Sweet Border Collie Rescue.

Lulu
July 27, 2014 10:11 pm

I have to put in my two paws as well……coming from a farming comminuty, the cats caught mice n birds, the dogs caught squirrels and wud happily snag a duck or chicken had they been allowed, they were fed people food. Scrapes, bones raw generally and they lived to 18 to 22. No where did it suddenly become okay to feed a beloved animal a bag of garbage from Walmart. Look at the ingredients people! A starving dog will not eat grains or corn etc…..I’ve witnessed it in Asia while on travels. Dogs eat meat as do cats and it is raw. They never have nor will ever have access to ovens or stoves to cook their mice or birds before eating them.
Humans will believe this is good for their pets to justify their laziness. And as for Vets, well….they should know better than anyone that animals require raw meat. The body be it human, feline or canine is a wonderful thing. It survives on very little for a very long time and this is why our animals fed this bagged and canned garbage of convenience live.
My dog is a rescue from Cuba, she is 12 now, I’ve had her 12 years and most people think she is a puppy. She will not eat anything processed, she won’t eat bacon, sausage or cheese. People say she is fussy….I say she knows what’s good for her and what isn’t.
I saw a documentary of dog food made from an old boiled leather boot, some old oil from a car and a thimble full of liquid vitamins, some filler, it may have been saw dust, boiled down, sent in to the government for approval and approved as dog food!
I be
I believe practically everything on the cat and dog food shelves is not food fit eating. How can decent food for a cat cost $3.49 for 5 lbs……
It breaks my heart to watch people buy 25lb bags of garbage dog food from Costco knowing besides water that is all their dog gets to eat because some vet said don’t feed your dog people food. It’s bad for them.
If you go to dog parks or places where unfit dog owners, (usually those who feed their dogs this garbage) do not pick up their dogs poop, after a few days it deteriorates into nothing but a gross white log of nothing. Poor animals…..no wonder they are bloated, will eat any thing a human tosses at them, devour an old bone and salivate while watching everyone eat food that has nutrition. If you feed your dogs this type of food you are starving it!, and slowly killing it.
And so as uneducated as I am, that’s how I see it……..vets are very much to blame for this. Sorry to the lady who’s husband is a vet…but really come on, think about it girl!!!

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jimbecker
jimbecker
August 29, 2015 7:16 pm
Reply to  Lulu

Growing up I would come home from school to find my Norwegian Elk Hound laying on the front lawn, eating a freshly killed muskrat. She ate from the inside first all the organs. Dogs are descended from wolves.

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darcy841
darcy841
August 29, 2015 4:32 pm

Re:VCA provides exemplary veterinary service by purchasing large veterinary practices and referral centers staffed by state of the art specialists and equipped to provide the highest standard of care. . Better medical/diagnostic care for pets than available for most people in the third world. They market to people who want the most advanced services for their pets, and are willing to spend $$$$ . Every drug/procedure provided costs more, frequently significantly more, than the vet down the street. There are lots of GP practitioners who provide similar high quality and but less costly services for routine procedures. To each his own, a I can provide a hysterectomy(SPAY) via a 2 inch umbilical midline incision for $200-400, a board certified veterinary surgeon offers laproscopic hysterectomy via ¾ inch incision for 5 to 10 times as much. VCA hospitals are full of “toys”, very expensive Doctor’s toys, every client pays the overhead for them. VCA may be more resistant to economic declines as the clientele tends to be both strongly motivated and well healed.

the hijacked treads
Re:Raw diets Let the raw diet fanatics, feed whatever they want to their own pet, I do not recommend them. I have stopped trying to change their minds. While I could write many anecdotes and experiences suffice to say don’t we all live a lot longer because we cook our food, purify our water and have public health agencies monitoring most all aspects. That being said many in the pet food industry have done animals a great dis-service by substituting high quality (horse) protein, canned dog food in the 1950’s, with all types of carbohydrates, and poultry bi-products like feet and beaks or feathers or even leather. The excess calories causing diabetes, and antigens in the cereal grains are responsible for a myriad of pet diseases. I routinely see inflammatory bowel disease, (Crohn’s) in in pets due to allergens, cereal grains, various protein sources, viruses and bacteria. The pet food industry is most probably partially responsible. Raw diets occasionally work but are rarely THE answer, and have been proven the CAUSE in others.

I agree that cats should only eat canned food, it’s expensive and a nuisance but they are much more likely to maintain a normal body weight and do not develop gross obesity, type 2 diabetes, or hepatic lipidosis. Per an Australian veterinary diabetes specialist proceedings ACVIM 2015

CGD
Parker CO

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