Topic: How To Invest

The profit margin of McKesson, one of your recommended stocks, is 1%. Doesn’t that low margin make the earnings highly unpredictable and introduce risk? Thanks.

Article Excerpt

McKesson Corp., $86.99, symbol MCK on New York (Shares outstanding: 235.4 million; Market cap: $20.5 billion; www.mckesson.com), has long been a company with very high sales and yet low earnings. That’s mainly because its main business, drug distribution, is an inherently low-profit-margin activity. McKesson is a recommendation of our Wall Street Stock Forecaster newsletter. The company is the largest wholesale drug distributor in the U.S. and Canada. It also owns 49% of Mexico’s largest drug distributor. McKesson’s customers include 40,000 pharmacies, as well as doctor’s offices, hospitals and clinics. The company also supplies surgical tools and health and beauty products To boost its profit margins, McKesson aims to keep expanding its technology solutions division, which makes computers and software that help pharmacies and clinics manage their drug inventories. This business supplies just 3% of McKesson’s revenue, but close to 25% of its earnings. Meanwhile, McKesson’s profit margins, although low, are stable. The company is a leader in its field, and it continues to win…