There aren’t many companies that can say their roots go back before the Civil War — all the way back to 1833. Andrew Jackson was president and was first U.S. president to ride a train in that year.
McKesson Corporation (NYSE:MCK) was there. And it was very much in the same business it is today; supplying all manner of supplies and pharmaceuticals to the healthcare industry.
Certainly times have changed in the past 182 years. But while MCK has expanded its offerings, it has fundamentally stuck to its knitting, growing its presence in its niche rather than striking out in new territory.
This kind of conservative approach has turned MCK into a Fortune 500 company with more than $135 billion in annual revenue and a market cap of more than $56 billion.
And it’s why it’s been a portfolio holding of mine for going on two years now.
MCK isn’t a flashy big-cap biotech. It’s not a high-tech medical supply company or healthcare software firm. It distributes the daily necessities to hospitals, care facilities, medical offices and even individuals, with a slight tech component thrown in.
But if you already have established yourself in a solid sector with huge growth potential — aging baby boomers, for instance — over the next few decades, there’s no reason to mess with what you’re doing.
That’s what happened to many banks in the past couple decades.
Traditional bankers drove their Buicks to work, put in the hours writing mortgages on properties and making the difference between what they paid for money and what their clients paid for money. Or they cautiously invested cash from customers at a slightly higher level than they charged to keep the money in the accounts.
But then they saw the investment bankers in their $3,000 suits driving Bentleys — and they wanted in on the action.
What happened to the banks is a cautionary tale.
And in the healthcare sector, there are many opportunities for Buick businesses to puff themselves up to Bentley businesses. But in more cases than not, there’s a reckoning for this kind of hubris.
MCK has avoided this risk by not playing the game.
The reward? A five-year return of nearly 260%. In the past year alone the stock is up 34% and year-to-date it’s up 16%, outpacing the major averages and just a hair behind the high-flying iShares NASDAQ Biotechnology Index (NASDAQ:IBB).
MCK recently reported fourth-quarter earnings — revenue was up 30% year-over-year and earnings were up 24% year over year. And that includes a small gain in international markets because of the strong dollar.
MCK is not slowing down from here; it’s gaining momentum. But the nice thing about this company is while momentum rises, volatility doesn’t.
Recently Dan Loeb, head of Third Point hedge fund, dumped 10 million of shares in Alibaba Group Holding Ltd (NYSE:BABA) and used a chunk of the proceeds to buy 626,000 shares of MCK. That’s a pretty positive sign there is plenty of potential left in MCK.
Also, MCK is rumored to be on the acquisition trail of Omnicare, Inc. (NYSE:OCR) a nursing home pharmaceutical and medicine supplier. Exciting stuff.
Here’s to another century of success.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
