McKesson Corp (MCK)

This has 2 main business lines. They are a wholesale distributor, and as well, they own some pharmacies. A couple of quarters ago, they indicated they were seeing price pressures, and then he listened to the Amerisourcebergen (ABC-N) and it wasn’t quite the same language. This gave him a little pause, and sold his position in January. They are exposed to generic drug prices, which are coming down. Expect this is a sector that will be getting more scrutiny from the US political regime.

A very big player, and has long been a leader. The stock is a long way down from its high. She thinks this company and stock will come back strong. It is a beautiful entry point for it. (Analysts’ target: $151.00).

One of the top 3 distributors of drugs in the US. A very high volume, low margin business. They indicated they were transitioning into the retail side by acquiring 2200 retail pharmacies in Europe as well as IDA in Canada. They are exposed to the generic drug pricing, so he opted to stand on the sidelines.

One of 3 really big pharmaceutical distributors in the US. A perfect example of short-term versus long-term investing. Healthcare has been a tough sector for the last year. Politically, it always has a big target on it back. He expects the sector as a whole to do a lot better this year. They are working in an oligopoly type structure now. They’ve had a lot of margin expansion over time, which may have ended. Longer-term he likes this, but in the short term it is going to struggle.

A decent play on a healthcare rebound. This is really a triumvirate of 3. You have Amerisourcebergen (ABC-N), Mckesson (MCK-N) and Cardinal Health (CAH-N). They have 90% of the drug distribution business. It’s a low margin business, but the good news is that everyone who wants to get into it leaves it for these 3. The valuation is far more attractive now.

This group has been hurt very badly lately. It looks like the ability to pass on price increases is coming to an end. Also, with the potential of Hillary Clinton being president, and viewing drug prices as something that should be looked at, it is probably an area to avoid for a while.

Any time where you have a swing of 20%-40%, clearly there is an issue with communication between investors, management and analysts. He would take the bad medicine now and move on to something that is working a bit better.

Drug companies are getting their brains smashed out, whether a producer, generic, pharmaceutical benefits manager or a drug distributor. They are getting subpoenas. They are under competitive pressure. This is reflected in their stock prices. If you have a long-term investment horizon, this is the time to start accumulating companies.

MCK-N vs. CAH-N. They have done very much the same thing, so she has no preference. MCK-N is certainly the leader in the group. The peak was last summer at $15. If MCK-N moves lower she would buy a lot more of it.

MCK-N vs. ABC-N. He likes them both, but prefers Cardinal Health (CAH-N). Those running for election are talking limits of drug prices. He likes all but CAH-N is the best.

The largest pharmaceutical distributor in the US and Canada, as well as the largest healthcare IT provider. They are basically in 50% of all US hospitals. Trading at 15X forward PE with an 11% long-term growth rate, so it is a pretty good valuation. They will do well with what is happening with Obama care. If you own, he would put a stop loss on it.

Healthcare is the biggest industry in the US, and is highly domestically focused. About 80% of this company’s sales are US based. The US has an improving consumer, an aging consumer and things like Obama care which are not hurting the spending on healthcare. This is a distributor and they also have a PBM (pharmacy benefits management) unit. They continue to grow and beat the most recent estimate by about 7%.

In drug distribution, mostly generic, and has done a wonderful job. A lot of their growth has happened and the price ($234) reflects a great deal of optimism in the future. Growth is slowing somewhat, and is coming from different places as opposed to being organic growth, such as stock buybacks, reduced floats.

Likes it a lot, but doesn’t own it because he has a lot of healthcare. Really benefited from a pickup in volumes. Well poised to benefit from the US healthcare act.

Management team seems to be exceptionally strong. Bought a number of companies over the last couple of years and just completed a big acquisition in Germany which makes them a big, significant, generics distributor in Europe which will be accretive to earnings. Looking out a couple of years, he could see $11-$12 in earnings. Very, very good at execution. Yield of 0.54%.