When a Fad Becomes Permanent – Pet Spending Investments for 2010

When pet-mania became an epidemic coming out of the 2001/2002 recession, it didn’t take long for investors to recognize the opportunity. Since 2001, annual pet spending has nearly doubled, reaching $45.5 billion in 2009. But how long can the fad last? Longer than it has, if 2010’s conservative forecasts are right.

Incredibly, the growth of pet spending didn’t falter in 2008 and 2009, despite the worst recession the country has seen in decades. Just think how well these companies could do when the country’s not in a recession.

With that in mind, here’s a breakdown of the 2010 pet-spending forecast of $47.7 billion (+4.8%), and the company best-positioned to benefit from each category’s growth.

PetSmart…. the Wal-Mart of the pet world: The bulk of the pet industry’s revenue is devoted towards pet food a s segment expected to be worth $18.3 billion this year. Yes, food is a commodity, and Wal-Mart (NYSE:WMT) and other grocers have nagged at PetSmart (NASDAQ:PETM) in the category. Yet, holding the biggest market share in the pet retail industry still best-benefits this Wal-Mart of the pet world.

Most-improved: It may be a small segment of the total market, but vet care is expected to also see the most growth in 2010…. a 6.2% increase to $12.8 billion.

While size doesn’t always matter, in this case, VCA Antech (NASDAQ:WOOF) is able to capitalize on its size and achieve an economy of scale – the company manages about 500 veterinarian offices and labs across the country. The company saw 3% more revenue in 2009, and is expected to up the top and bottom line in 2010.

A very close second in terms of performance and potential in the vet care and diagnostic venue is Idexx Laboratories (NASDAQ:IDXX). Fourth quarter profits were up 16%,

and sales grew by 11%. Those numbers alone would merit a top spot, but it remains to be seen if Idexx can consistently grow at those rates.

PetMed…. the Amazon.com of the pet medicine world: If PetSmart is the Wal-Mart of the pet world, then PetMed Express (NASDAQ:PETS) could be considered the Amazon.com (NASDAQ:AMZN) of the pet world. It operates website that sells supplies and over-the-counter medicine for furry friends – an arena expected to see 5.7% revenue growth in 2010.

The online market share for pet medicine is expected to improve from 11% to 20% within a few years – a trend PetMed Express apparently has already tapped. The company has posted six straight year-over-year increases in quarterly profits, and is expected to continue the streak this year.