Recent buy – McKesson (MCK)

am

mckessonThe stock is down by $40 today. The lowest in two years.

This is the 5 years MCK chart. Somebody has lost a lot of money in the last 2 years. Probably including myself, as MCK rank #3 on the S&P, and 70% of my 401K is residing in the S&P. Ouchy!!

mck.png

 

Top Mutual Fund Holders. Yep! If you’re been a Vanguard Total Market Index fund, or mutual fund, your fund probably has gone down just a little bit.

Top Mutual Fund Holders

Holder Shares Date Reported % Out Value
Vanguard Specialized-Health Care Fund 7,165,280 Jul 30, 2016 3.17% 1,394,076,862
Vanguard Total Stock Market Index Fund 4,493,325 Jun 29, 2016 1.99% 838,679,084
Growth Fund Of America Inc 3,701,000 Jun 29, 2016 1.64% 690,791,627
Vanguard 500 Index Fund 2,952,138 Jun 29, 2016 1.31% 551,016,539
Price (T.Rowe) Blue Chip Growth Fund Inc. 2,578,300 Jun 29, 2016 1.14% 481,239,679
Vanguard Institutional Index Fund-Institutional Index Fund 2,526,785 Mar 30, 2016 1.12% 397,336,941
SPDR S&P 500 ETF Trust 2,366,298 Jul 30, 2016 1.05% 460,386,934
Price (T.Rowe) Growth Stock Fund Inc. 2,230,147 Jun 29, 2016 0.99% 416,256,924
Vanguard Specialized-Dividend Growth Fund 2,027,690 Jul 30, 2016 0.90% 394,507,362
Price (T.Rowe) Health Sciences Fund 1,777,784 Jun 29, 2016 0.79% 331,823,372

 

What is McKesson:

McKesson Corporation operates as a pharmaceutical distribution services and information technology company in the United States and internationally. It offers pharmaceuticals and medical supplies, and services for healthcare operations. The company operates in two segments, McKesson Distribution Solutions and McKesson Technology Solutions. The McKesson Distribution Solutions segment distributes branded and generic pharmaceutical drugs and other healthcare-related products; and provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. This segment also provides specialty pharmaceutical solutions for pharmaceutical manufacturers; and medical-surgical supply distribution, equipment, logistics, and other services to healthcare providers. In addition, this segment operates retail pharmacies in Europe and supports independent pharmacy networks in North America; sells financial, operational, and clinical solutions to pharmacies; and provides consulting, outsourcing, and other services. The McKesson Technology Solutions segment delivers enterprise-wide clinical, patient care, financial, supply chain, and strategic management technology solutions; and connectivity, outsourcing, and other services, including remote hosting and managed services to healthcare organizations. This segment’s product portfolio addresses various healthcare clinical and business performance needs ranging from medication safety and information access to revenue cycle management, resource utilization, and physician adoption of electronic health records. This segment serves integrated delivery networks, hospitals, physician practices, home healthcare providers, retail pharmacies, and payers. McKesson Corporation was founded in 1833 and is headquartered in San Francisco, California.

1. Missing earning by 11 cents. Analysts estimated $3.05, MCK reported $2.94/shares.It’s down because:

Analysts surveyed by FactSet were looking for adjusted earnings of $3.04 per share on revenue of $51.21 billion.

2. Cutting earning and revenues outlook. With both republican and democratic candidates said they’d address drug pricing rise uncontrollably. Pharmaceutical companies have been dropping like flies. You see GILD, AMGEN, ABBV all the darlings have been falling.

For fiscal 2017, McKesson now sees earnings per share between $12.35 and $12.85. Analysts are projecting earnings of $13.06 per share, according to FactSet.

Previously, the company guided full-year earnings per share between $13.43 and $13.93.

3. Analysts downgrade.

Additionally, the stock was downgraded by several firms today, including Leerink, Deutsche Bank and Baird.

Why buy?

1. It dropped 40 bucks in a day. Geezz. Hihi It’s now in $120s down by $80 from $202. I said, “enough!” And dived in.

2. Dividend payout is 10%. Well, it will have the cash flow to increase dividends with the 3 years average growth at 8%. In 6 years, I’d see my dividend double to $2/share? Hihi

3. Many pharmacies chain use MCK as drug wholesalers, and MCK as their OS system for drug Point of sale. MCK is diversified that way, it’s not just relying on selling drugs to make money. Other  business includes selling healthcare equipment.

4. PE is 11 compares to CAH of 15.  I know it doesn’t say much , as the company slash outlook, but PE near 10s are OK.

5. When oil price drops you don’t see stocks like CASEY gas or Phillip 66 stock correct that much. Because they are the middleman. If oil price is high, some of fee they’d always factored in to charge the customers are fixed. Then the mark up percentage. When the gas price go down, it effects the, but not by much. Then there is the people coming into the stores buying foods and merchandise. That will not change. So same with McKesson and Cardinal. Sure, their profit will be off a little bit. But we have not seen the price drop significantly just yet. It takes years for policy to take place.

6. The company authorize $4B stock buyback. So, we might see if the price dip below $100s, maybe I’ll buy somemore with the company? heheh

Here is the trading volume as of this morning:

Volume 22,542,071
Avg Vol (3m) 1,570,738

For that it’s okay in my book to invest 20 shares. If it dips further, I’ll buy more to reduce my cost.

Full Disclosure:

I’m long MCK and S&P 500.

GA

5 Comments

    • It’s definitely the story of all of us investors. 🙂 welcome aboard. 🙂

      I’ve just been hoarding some cash, as I was fixing my rental property. Otherwise, I’d be short of capital also.

  1. I was really looking at that name on Friday but went with CAH instead. Nice way to take advantage of a big overreaction. This was and the sector was really unfairly punished but that’s how the markets react. I think you will do well buying in at these levels. Thanks for sharing.

    • I actually bought MCK because I read your article on baby Divhut update. You had mentioned CAH.
      Although, I’m in the healthcare, but I pretty much stay off of pharmaceuticals. You are absolutely correct about wholesalers getting unfairly punished. It’s not the same story as CAT and NOV whose provide the equipment for oil rig companies. They are the gas stations. I think it’s fairly closed to being corrected. I probably ended up buying more to lower my cost if necessary.

      I’m also watch CAH. I’m looking forward to your write up on CAH if you’re planning to write one.

  2. Congrats on getting a $40 discount. I almost bought this stock on Friday, but its low dividend yield stopped me from pulling the trigger. On the flip side this company has a really low payout ratio and an awesome dividend coverage ratio. There’s plenty of room for growth.

Leave a Reply

Your email address will not be published.


*