McKesson (Mc 0.95%) A great stock for long-term holders, but not many investors are familiar with it. This medical distribution giant is anything but glamorous, and you won’t see its shares skyrocket anytime soon.

But the truth is that the company has been a strong performer for its shareholders over the past 10 years — and here’s how much money it would have made had you invested in it.

You will be sitting on a decent wad of cash

If you bought $5,000 worth of McKesson stock in early April 2013 and reinvested all of your dividends, your investment would now be worth about $18,700 after a 274% increase. On the other hand, if you buy shares of a market-tracking index fund SPDR S&P 500 ETF Trust, with reinvestment you will only have $15,540. Obviously, this means that McKesson investors beat the market handily — but the less obvious observation is that they beat the market without taking on too much exposure to risk.

Remember, McKesson is a slow-growing medical distribution giant, not a hotshot growth stock. It makes money by buying large quantities of branded pharmaceuticals, medical supplies, surgical equipment and generic drugs that its more than 40,000 customers need, selling them and pocketing a small profit. How massive is massive, you may ask? In 2022, its cost of goods sold (COGS) topped $250 billion, while its total revenue was about $264 billion. For reference, its average annual profit margin over the past 10 years was just 0.6%, so it’s ideal to operate on such a large scale.

Such a company does not present a large risk burden to investors because it is incredibly difficult to replace both its customers and suppliers. To bridge the gap without McKesson, drugmakers and medical supply manufacturing businesses must distribute their products directly to distant customers, with whom they may not have a pre-existing relationship. This means they have to negotiate the price of the product thousands of times, which includes a huge logistical burden before even considering the larger logistical burden of moving items from point A to point B.

Likewise, its customers get a better deal by buying from McKesson than they would otherwise. Because the company operates on such a large scale, it can drive a hard bargain with its suppliers to buy products close to their production costs, then do the same for its customers.

While it’s true that McKesson is still vulnerable to things that affect its operating costs, such as fuel costs, it also benefits from other factors beyond its control, such as increased demand for specialty drugs, which helped drive 3% growth in its pharmaceutical segment in the fiscal third quarter of 2023. increase sales. And because its employees have the skills to build relationships with its customers and suppliers thanks to management’s focus on employee quality and corporate culture, it’s hard for competitors to do the same.

The next 10 years could be just as good

As favorable as the past 10 years have been for McKesson shareholders, there is reason to believe it can repeat the feat in the next 10 years. Management is indicating that the company is going to invest in new strategies like building its oncology and biopharma services to grow adjusted earnings per share (EPS) at least 10% annually over the long term.

Given that its quarterly earnings per share have grown 205% over the past five years, its recent track record in that segment is quite good. In particular, its oncology medicine and biopharma supply segments are expected to be the star of the growth show for at least the next few years. Within oncology, the focus will be on creating distribution channels for clinical research networks.

And assuming the biopharma sector continues to grow as the underlying technologies become more sophisticated and basic medical science advances, that part choice will likely be a favorable one for shareholders. But investors need to be patient if they want to invest in this stock. Growth in demand for McKesson’s distribution services is slow, and it will need to hold onto its shares for a long time to reap significant gains from its growth momentum.

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