Title: Position Switch — selling OTC Markets, buying Zoetis Show: Compounding Quality (Substack, compoundingquality.net) Guest: Pieter Slegers (author) Date: 2026-JAN-29 URL: https://www.compoundingquality.net/p/position-switch Length: written post (paid) — no timestamps Note: Paid-subscriber post captured via Stephen's logged-in session (the API body stopped at the paywall, just before the two names were revealed). Text verbatim; UI chrome (like/share counts, download buttons, subscribe CTAs) removed. Charts labelled "Source: Fiscal.ai" and the fundamentals-comparison screenshot are images not reproduced here; the figures quoted in the prose are complete. The Dutch word "Bron" (= "Source") appears once in the original.
It's time to make a portfolio switch.
We will sell a low-growth company for another company with more upside potential.
Let's tell you everything you need to know.
Let's play a game
Let's play a game before telling you which company we're buying and selling.
In the chart below you can see the Forward PE of both companies.
Orange line: the company we're selling
Blue line: the company we're buying
Source: Fiscal.ai
The company we're buying became 61% (!) cheaper since 2022.
It's now cheaper than the company we're going to sell.
Now let's compare the fundamentals of both companies:
I'm mainly concerned for the low growth outlook of the company we're selling.
Source: Fiscal.ai
If we compare the evolution of the intrinsic value for both companies, we get the following:
Hopefully I convinced you now that the company we're buying is a better company than the one we're selling.
Now let's dive into the names.
Selling OTC Markets ($OTCM)
How does the company make money? OTC Markets Group makes money by charging companies and financial firms for trading and data services, market listings, compliance tools, and investor-relations products.
Some relevant resources: - Meeting the CEO of OTC Markets - OTC Markets Deep Dive
Our investment in OTC Markets has been 'dead money' since we bought it in October 2023.
Bron: Fiscal.ai
The only return we received was the yearly dividend yield of 4.8%.
Growth has stalled and it looks like it's a more structural problem than initially thought.
Financial data are becoming more and more a commodity product and OTC Markets seems to be struggling from increased competition.
The high level of Stock-Based Compensation (23.4% of Net Income) is also something I don't like.
That's why I decided to sell the company.
Please note that the liquidity in OTC Markets is limited. Hopefully we don't influence the stock price of OTC Markets too much.
If we do, I won't be in a hurry to sell. I want to sell at the right price.
Our order We currently own 1.000 shares worth $55.470.
OTC Markets is an illiquid stock. The current stock price equals $55.5 and I don't want to sell it for much less.
That's why I'm entering my sell order for Q 1.000 with a limit price of $54 (this is what I'd like to get at least for my shares of OTC Markets).
Buying Zoetis ($ZTS)
How does the company make money? Zoetis makes money by selling medicines, vaccines, diagnostics, and other health products for livestock and pets to veterinarians, farmers, and distributors worldwide.
Some relevant resources: - Is Zoetis a good stock to buy? - Deep Dive Zoetis
We will sell OTC Markets and use the proceeds to buy Zoetis.
We already wrote a lot about Zoetis in the past.
The company is facing temporary struggles right now. This could result in opportunities for long term investors like ourselves.
Recently I was interviewed by a newspaper about the company:
Slegers points to the cause of the share price drop: "The trigger was the earnings report in November 2025. That turned out less positive than expected, causing the share price to drop by about 17 percent."
Zoetis consists of two segments: pet care and farm animal products. According to Slegers, the weakness stemmed primarily from the latter: "Those activities are also more dependent on the economic cycle." Meanwhile, the structural trend in pet care remains. "People have fewer and fewer children and more and more pets, and they are treated as full-fledged family members," he says. An anecdote to illustrate this: "I spoke with someone from the United States last week: her dog was sick, and she paid $25,000 for medication, uninsured."
Over the past 5 years, the stock price of Zoetis declined by 21.0%.
Source: Fiscal.ai
Over the same period, its EPS rose by +38.5%.
Source: Fiscal.ai
As a result, the valuation of the stock heavily declined.
Source: Fiscal.ai
Our Earnings Growth Model now gives an expected yearly return of 15.8%.
This would mean you double your money in less than 5 years.
Zoetis 101
How does Zoetis make money? Zoetis makes money by selling medicines and vaccines for pets and farm animals. Most revenue comes from pet treatments like allergy meds and parasite protection, plus steady demand from livestock health products.
Zoetis is a global compounder in a recession-resistant industry with decades of growth ahead.
It's shareholder-friendly, financially sound, and trading below its historical valuation levels.
Zoetis is the #1 animal health company globally, serving both pets and livestock in over 100 countries.
A bit below 70% of its revenue is generated via the pet market. It's a fast growing market with high margins.
The other 30% comes via livestock.
Here are some examples of their most important products:
Apoquel & Cytopoint: pet dermatology
Simparica Trio: leading parasiticide medication
Librela: dog arthritis
Librela alone is expected to reach $2 billion in sales by 2028.
Zoetis also enjoys a strong competitive advantage. They have more than 5,000 patents, spend a huge amount on research every year, and benefit from rules and scale that make it hard for new rivals to enter the market.
The company also treats shareholders well. It generates a lot of cash and gives part of it back to its owners.
As the stock looks cheap today, Zoetis is buying back its own shares.
Source: Fiscal.ai
The business itself is very stable.
Unlike human healthcare, most customers pay out of pocket, so Zoetis doesn't have to deal with insurance companies putting pressure on prices.
The current valuation looks as follows:
Zoetis:
Forward PE: 18.0x
Earnings Growth Model: 15.8%
Reverse DCF: Zoetis should grow its FCF by 8.0% per year to return 10% per year to shareholders
The valuation levels highlighted above look very attractive.
Full investment case Zoetis
TJ wrote an excellent piece about Zoetis in the past.
He already bought Zoetis for the Compounding Dividends Portfolio. It's great seeing great minds think alike!
You can download the full investment case here.
You want even more information?
Not So Deep Dive Zoetis - amazing investment case made by Luc Kroeze.
Our order The proceeds of selling OTC Markets will be used to buy Zoetis.
We will buy Zoetis for an amount of $54,000. After we sold OTC Markets, I will enter an order for Q 440 at a limit price of $123.
Conclusion
Sometimes you need to make important decisions in life.
OTC Markets has been dead money since October 2023. Growth has stalled, competition is increasing, and the business model looks structurally challenged.
On the other hand, Zoetis offers everything we look for:
A dominant market position
Pricing power
Decades of growth ahead
Trading at its cheapest valuation level over the past 10 years
The market is handing us a quality compounder at bargain prices. We're taking it.
Time to put our capital where it can actually compound.
Everything in life compounds Pieter (Compounding Quality)
Book Order your copy of The Art of Quality Investing here
Used sources Interactive Brokers: Portfolio data and executing all transactions Fiscal.ai: Financial data
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