New addition to the portfolio

I bought a new position in my portfolio today shortly after the start of trading in the USA: Zoetis $ZTS (+0.37%).

Zoetis is a manufacturer of medicines and vaccines for pets and livestock. The company is interesting for me for the following reasons:

• Gross margin of 70%, and rising
• ROCE of over 20%
• Market leader in almost all active segments
• High dividend growth
• diversified product portfolio
• low debt

The company operates in both the pet sector and the livestock sector. In the pet sector, there is a long-lasting trend towards regular and better medical care (regular vaccinations, cures, ...). The livestock sector is also benefiting from a sustained demand for better and more efficient medical care.

Overall, the market for veterinary medicine is expected to grow by 7-8% per year. Zoetis is already the market leader in many areas and has always managed to grow faster than the market as a whole.

Risks

This is a sector bet based on the hypothesis that there is a trend towards more and better medical care for pets and livestock. This may of course turn out to be wrong, especially in times of recession, the cost of medical care for pets may not rise (or even fall) as much as hoped.

Another risk is the current valuation. Zoetis is currently valued at a free cash flow yield of around 2.5%. A lot of growth is already priced in.

Summary

The risk/reward is attractive for me and I have opened an initial position. I will give the share time to assess the direction in which the company is developing. The price is certainly not a bargain at the moment, but for me it is still a price level at which I can open an initial position.