When I first heard about this industry, I thought it was a joke. I was wrong. The harsh truth is that many animals in the US get better health care than at least half of the humans. Animal health care is in fact a gigantic and hugely profitable business.

Recession or not, the animal healthcare industry seems to thrive as people continue to go to great lengths to provide the best options for their furry friends.

Unfortunately, the undeniable effects of economic downturns have forced not only ranchers and farmers to downsize their operations but domestic pet owners to cut their budgets for their beloved animal companions. Despite the threat of the next market crash, a number of investors believe that Zoetis (ZTS) is a good stock to hold.

The $48 billion global animal health company develops, sells, and distributes pet medications for ticks, allergies, and fleas. Zoetis also manufactures vaccines along with animal feed additives, veterinary diagnostics, and even anti-infectives. Aside from treatments for your plain vanilla cats and dogs, the animal health leader also offers products for poultry, horses, cattle, pigs, and fish.

The latest news to bolster the confidence of Zoetis investors is the highly anticipated regulatory approval of oral canine drug Simparica Trio. This chewable tablet for dogs is currently under review not only in the United States but also in Japan, Brazil, Canada, and Australia. Once approved, this drug will be marketed as an all-in-one treatment for heartworm disease, ticks, and internal parasites.

If approved, Simparica Trio is expected to become the next blockbuster product of the company by 2020. Sales of the drug is estimated to reach $1.36 billion in 2022, with $1.14 of incremental earnings per share.

With Zoetis’ move to focus on high-margin animal items, it’s no question that the Pfizer spinoff will remain on top of the game even with the recession. In fact, the company derived 41% of its 2018 total revenue from items for cats and dogs alone compared to the 31% competitor Eli Lilly spinoff Elanco (ELAN) raked that year for similar products.

In terms of total revenue, Zoetis reported $5.8 billion for last year’s work while Elanco raked in $3.1 billion. That allowed Zoetis to convert 24% of profits into income during the said period. Zoetis’ blockbuster items, such as Simparica, Clavamox, and ProHeat, also didn’t disappoint this year.

However, there’s no such thing as a risk-free investment.

One reason for Zoetis’ consistent reports of high margins is the fact that veterinarians remain the main distribution channel for animal products. While its 24% net margins obviously provide an adequate elbow room, the company could be pressured if owners decide to purchase from third-party channels like retail stores or online shops.

Taking into account the 2019 revenue guidance from the company that indicates at least 5% of year-over-year growth, Zoetis’ dominance in the market appears to remain firmly on solid ground.

Throughout the years, the leader in animal healthcare has consistently grown its revenue and maintained a solid gross margin. It has stayed ahead of the pack by snapping up value-creating acquisitions and developing new products.

A good example of Zoetis’ ability to spot promising mergers is its $2 billion acquisition of veterinary diagnostics firm Abaxis (ABAX) in July 2018. This deal is estimated to deliver at least $200 million in revenues this year, indicating its massive contribution to the $270 million year-over-year growth in the company’s profits in the first half of 2019.

Another exciting acquisition is nutrition solutions developer Platinum Performance, a deal which is expected to be wrapped up by the third quarter of 2019. While this deal is not anticipated to provide a major financial impact to Zoetis’ performance this year, it’s expected to give the company’s equine and pet care portfolio a substantial boost in the years to come.

Zoetis has been hailed as one of the most promising companies in the animal healthcare industry today. Since its IPO in 2013, the shares of this Pfizer (PFE) spinoff has reached a total return of 242% -- lightyears ahead of the 137% total return of the S&P 500 within the same period.

Buy Zoetis on the dip.