TRADE INSTRUCTIONS
Date: December 4, 2017
Name: McKesson Corp.
Symbol: MCK (NYSE)
Type: Open
Limit: Buy below $155

TRADE TARGETS
Holding Period: 3 months
Target Return: 9.1%
Annualized Return: 36.4%
Target Price: $169
Stop Loss Level: $135

COMPANY DESCRIPTION
McKesson Corporation (McKesson) is engaged in delivering pharmaceuticals, medical supplies and healthcare information technology. The McKesson Distribution Solutions segment distributes drugs and equipment, and health and beauty care products across North America and internationally. The Technology Solutions segment delivers clinical, patient care, financial, supply chain and strategic management software solutions, as well as connectivity, outsourcing and other services. Its McKesson Health Solutions portfolio includes ClarityQx, which is a payment technology. Link to company website.

TRADE RATIONALE       
Yesterday’s announcement that CVS is acquiring Aetna has turned the stock market’s spotlight back on the healthcare sector. To be clear, we don’t think McKesson is necessarily a takeover target, but our Rapid Profits Matrix does believe that MCK is undervalued given its generous earnings yield of 19.8% and very high return on total capital of 70.6%.

Coming on the heels of last week’s resurgence in retail stocks, we may be witnessing a shift back towards value. The “Trump Bump” rally that has pushed growth stocks higher over the past twelve months may run into a wall if the proposed tax cut does not get passed this month, in which case a stock like MCK should start getting more attention.

There was nothing particularly noteworthy in its most recent quarterly results, but we’re not looking for anything exceptional in the way of news for this stock to hit our target price. Simply put, McKesson is a high-quality value stock priced at only 7 times trailing earnings in an industry that may be on the verge of rapid consolidation, especially if Amazon decides to ramp up its burgeoning pharmaceutical business.

NOTE: This stock is optionable.