A Quality Beaten-Down Stock
Always focus on the bright side. Not only does that perspective get you in a better mood, but it can also work as good advice when it comes to making money. This becomes especially effective with the downturn of the stock market.
It’s pretty easy to discover beaten-down stocks in today’s environment. However, finding businesses that are worth your money at current levels and holding on to them for a long time is an entirely different story. Long-term stocks are not your run-of-the-mill companies, especially since many businesses with declining shares are better left alone.
While it didn’t suffer as much as the other sectors, the biotech and healthcare industry still has some beaten-down stocks that are worth buying. One of them is Zoetis (ZTS).
It has been a particularly rough year for Zoetis, with shares of this animal health company falling by over 40%. Things didn’t get better when it disclosed its third-quarter earnings report for 2022.
Going direct to the point, neither Zoetis’ earnings nor updated guidance. Zoetis dialed down its full-year guidance for 2022, estimating its initial expected revenue, which was between $8.225 billion and $8.325 billion, to fall to $8.08 billion instead.
As expected, the market reacted negatively to these figures, with the stock declining by 11%.
Although this might not appear to be a substantial drop in comparison to how other companies are performing this earnings season, it’s still a significant one-day drop for Zoetis. For context, this latest drop was the company’s second-biggest one-day decline in the past 10 years—only second to the one they recorded when COVID struck.
Reviewing the “numbers” section of Zoetis’ earnings report, one of the major causes of the lower-than-anticipated growth was supply constraints. This issue affected both US and international markets, albeit involving the former more.
Actually, “supply” was the most important issue discussed during the earnings call—so much so that the term “supply” was uttered a whopping 62 times.
It wasn’t just Zoetis that suffered from supply-related issues. These concerns affected practically the entire animal health sector this year, including another major competitor, Elanco (ELAN).
Knowing the root of the issue behind Zoetis’ recent decline is key to determining whether this remains a good stock. It always helps if we can understand the factors in play that led to the earnings report and add some context around the figures presented.
After all, the figures at times portray one thing and miss out on what is under the surface—the things that we need to understand and know about to interpret the results better.
At this point, Zoetis can still be considered an excellent company that needs to deal with some supply issues. When these are resolved, it will do just fine as a long-term investment.
Moreover, the animal health market has an incredibly bright future ahead.
This industry is projected to record a compound annual growth rate of 10% through 2030.
Pet ownership has climbed notably during the pandemic and is projected to sustain its upward trajectory in the years to come.
In addition, population growth will result in an increased demand for protein-rich food sources like livestock. That would translate to an expanded revenue stream for animal health companies, which offer products geared towards these demands.
With a market capitalization of $69.11 billion and a broad reach both in the US and across the globe, Zoetis is well-positioned to profit from this projected growth.
Moreover, this company is currently recognized as the market leader in animal health for cattle, swine, companion animals, and fish, while it ranks #5 in the global poultry market.
Overall, Zoetis is worth adding to your portfolio. While it’s facing some short-term challenges, this animal healthcare business is a pretty solid buy.
