Buy these stocks to ride the pandemic 'pet boom,' according to Bank of America

Published Sun, Sep 27 20208:00 AM EDT

(This story is for CNBC Pro subscribers only.) Pet ownership has soared this year during the coronavirus pandemic as stuck-at-home Americans seek to fill voids with canine and feline companionship, and the trend is benefiting a slew of pet retailer and health care stocks, according to Bank of America. The Wall Street firm surveyed more than 1,000 U.S. consumers and 69% of respondents have at least one animal, while 37% had adopted a pet in the last six months. The results led the bank to believe that the trend of higher pet ownership will extend beyond the pandemic boost. "This indicates a large installed base of pets in the US, and a material increase in recent months," Bank of America's research analyst Elizabeth Suzuki, said in a note. "An increasing desire for more space could result in more Americans moving to homes that have more physical space for a pet." The bank highlighted a number of stocks across various pet-related segments for investors to play the "pet boom," from online retail, to pet food producers, and to animal health care. With shopping shifting online during the pandemic, pet food and products are no exception. Bank of America said Chewy is one e-commerce player investors should focus on in the pet industry. Shares of Chewy have soared more than 90% this year. Chewy is going toe-to-toe with Amazon by differentiating itself with more than 1,000 pet specialists to communicate with customers, Bank of America's internet analyst Nat Schindler said. Schindler expects Chewy's "subscription-focused growth model and niche positioning to allow the company to continue to compete against Amazon and incumbent specialty pet retailers." Meanwhile, brick and mortar retailers are slowly returning to growth as the economy reopens. And Tractor Supply is a key stock in this space as it is the only large chain of its kind that carries food and supplies for both large and small animals, Bank of America noted. The bank also called Tractor Supply "the most direct beneficiary of the pet boom" in its hardline coverage universe. Its12-month price target of $171 calls for a 23% gain for the stock, which has already risen 48% in 2020. Pet food producers In the U.S. food universe, Bank of America analyst Bryan Spillane found a couple names involved in the pet industry. Freshpet is one of the few pure-play pet food companies in the U.S. and is potentially benefitting from the surge in pet ownership. However, the analyst noted that its premium nature and higher pricing of its products could pose a risk to the company's revenue target given the economic instability. As one of the largest food manufacturing and services companies, J.M. Smucker generates about 37% of its revenue from pet foods with well-known brands such as Kibbles 'n Bits, Milk-Bone, and Meow Mix, the bank said. J.M. Smucker is up about 7% this year, trading at a discount to its packaged food peers, the analyst noted. Meanwhile, the bank urged caution against General Mills , which offers the Blue Buffalo brand of pet food. General Mills' management noted that the pet food stock-up that took place early in the outbreak reversed in recent months, the analyst said. The bank has a neutral rating on the stock. Other products & health care Within the household and personal care space, the three companies with exposure to the pet supplies industry and a buy rating are Colgate-Palmolive , Church & Dwight and Spectrum Brands , the bank said. Clorox is another name taking advantage of the pet boom with its growing cat litter products, which account for 7% of its total sales, the bank said. However, given its high valuation, the bank has a neutral rating on the stock. The consumer sector is not the only investment opportunity in the pet boom theme, and the bank also highlighted a couple health care stocks: IDEXX Laboratories , Elanco and Zoetis .

With pet ownership on the rise, hotels are openly courting owners with pun-filled packages.

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(This story is for CNBC Pro subscribers only.)

Pet ownership has soared this year during the coronavirus pandemic as stuck-at-home Americans seek to fill voids with canine and feline companionship, and the trend is benefiting a slew of pet retailer and health care stocks, according to Bank of America.

The Wall Street firm surveyed more than 1,000 U.S. consumers and 69% of respondents have at least one animal, while 37% had adopted a pet in the last six months. The results led the bank to believe that the trend of higher pet ownership will extend beyond the pandemic boost.

"This indicates a large installed base of pets in the US, and a material increase in recent months," Bank of America's research analyst Elizabeth Suzuki, said in a note. "An increasing desire for more space could result in more Americans moving to homes that have more physical space for a pet."

The bank highlighted a number of stocks across various pet-related segments for investors to play the "pet boom," from online retail, to pet food producers, and to animal health care.