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SCOTT LEHTONEN

IBD 50 Stocks To Watch: Drug Leader McKesson Eyes Buy Point Amid Market Sell-Off

Drug leader McKesson, Wednesday's pick for IBD 50 Growth Stocks To Watch, is near its latest buy point despite a wobbly stock market. This makes MCK stock one of the best stocks to buy and watch in the current market.

The company is the biggest distributor of pharmaceuticals in the U.S., leading Cardinal Health and Cencora, according to JPMorgan analyst Lisa Gill. She estimates that McKesson controls 37% of U.S. pharmaceutical drug sales. Further, the company is moving deeper into specialty medicines.

McKesson continues to report steady growth in sales and earnings. Last year, sales rose 5% while adjusted earnings climbed 9%. Wall Street expects McKesson's earnings to grow 5% this fiscal year and 13% the next, according to IBD MarketSmith.

In the latest quarter, the company's earnings grew 25% vs. the year-ago period, to $7.27 a share. Sales grew 11% to $74.48 billion.

Those results marked accelerating sales and earnings growth over the past two quarters. EPS growth accelerated from 12% to 23% to 25% in the latest quarter.

Due to that strength, McKesson stock shows a powerful 97 Earnings Per Share Rating, according to IBD Stock Checkup, putting it in the category of best stocks to buy and watch. This rating takes into account EPS growth and stability of earnings over the past three years. The two most recent quarters are weighted more heavily.

The company reports sales from four segments: U.S. pharmaceutical, international, medical-surgical products and prescription technology services. But its biggest business, by far, is the U.S. pharmaceutical division. U.S. drug sales account for about 87% of total revenue.

Learn How To Time The Market With IBD's ETF Market Strategy

MCK stock displays a strong 96 IBD Composite Rating, with decent stock price performance since July making up for some mediocre long-term fundamentals.

MCK Stock Attempts Breakout

McKesson stock is trying to break out past a flat base's 441 buy point, per IBD MarketSmith pattern recognition. Shares rose nearly 1% midday Wednesday, looking to extend a two-day advance. They were on pace to regain their buy point.

Shares broke out on Sept. 20, but gave up the buy point during the recent stock market weakness.

Bullishly, the relative strength line hit a new high in recent sessions, confirming the strength of the breakout. A strong RS line is a sign of big outperformance vs. the S&P 500.

Decent fundamentals, along with bullish gains in recent months, make McKesson stock one of the best stocks to watch in today's stock market.

However, the stock market is still in a correction, with a 0%-20% recommended exposure range, per IBD's The Big Picture. That means investors should be playing defense and focusing on refreshing watchlists until the market outlook improves.

Best Stocks To Buy And Watch

Three recent IBD 50 Growth Stocks To Watch picks are among the best stocks to buy and watch.

Company Symbol  Buy point Type of base
Cadence Design Systems 247.50 Cup with handle
Global-e Online 42.51 Trendline
Halliburton 41.08 Cup with handle
Source: IBD Data As Of Oct. 4, 2023

Follow Scott Lehtonen on X/Twitter at @IBD_SLehtonen for more on the best stocks to buy and watch and the stock market.

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