Goodreid Blog

McKesson (MCK-NYSE) - A Stock for the Times

August 29, 2022

What’s wrong with sleeping well?

Balancing an equity portfolio’s risk profile is a matter of personal comfort. The focus is more on the volatility along the road to a result than the expectation of achieving the result itself.

Recently, Goodreid reduced its risk profile in its U.S. Large cap portfolio by trimming a couple of securities that have performed very well off the June market lows and skew towards the risk side of the portfolio and adding a solid defensive issue that is coupled with an exceptional growth profile. 

Our new position, McKesson (MCK-NYSE), provides healthcare solutions in the United States, primarily through drug distribution. As such, it is relatively insulated from bouts of waning consumer confidence and has little exposure to the negative effects of an appreciating U.S. dollar. There have been three pronounced periods of low consumer confidence this century and in all three periods MCK has handily outperformed the broad markets. Earnings predictability is strong. In its most recent financial report, the company reported high single digit growth in both revenue and earnings and raised its EPS estimate for fiscal 2023 to $23.95-$24.65. At a stock price of $360, this represents a price to earning ratio of approximately 15 times and an earnings yield of close to 7%. MCK has an investment grade balance sheet, ample liquidity, and financial flexibility. 

Our first trim, Apple, has been a stalworth of the U.S. Large Cap portfolio since 2006, when it was purchased at a split adjusted price of $2.30 per share. Surprising to some is that we have trimmed AAPL seven times over the sixteen-year association, every time for the same reason. It represented an over-sized percentage of the portfolio, and that elevates risk. From the June 2022 S&P 500 Index low to late August, AAPL gained 34% to $174/share, far outpacing the broad market’s gain of 17%. It now represents 7.5% of the S&P 500 Index weighting and over 10% of the Nasdaq 100 Index weighting. Its weighting inside the Goodreid U.S. Large Cap portfolio was approaching 8%, a 50% premium to an equal weight position. We continue to appreciate the long-term opportunity but tactically it made sense to reduce exposure.

Lowe’s was purchased in early 2021 for $171/share and appreciated to a healthy trim price of $211. It is closely associated with the housing market and consumer confidence, both of which have taken a hit during these times of rising rates, heightened inflation, and fears of a recession. While the fundamentals of LOW are solid, management is confident and valuations are compelling, this holding comprises a “risk-on” position within the portfolio. At over 7% weighting, we took the initiative to trim this position.

Defining investment success is complex. Some components like return are straight forward; other determinants more abstract, such as the risk taken to gain a result. At Goodreid, we understand that we must protect capital, in all circumstances. But we also have a responsibility to grow wealth in real terms and to outperform competitive options over time. Tactically adjusting the risk profile of our portfolios is an integral part of the process and their success.

Gordon Reid

President & CEO

Gordon Reid, President and CEO of Goodreid Investment Counsel Corp., entered the financial services business in 1985 and co-founded Goodreid Investment Strategy, one of Canada's first fully discretionary "high net worth" wrap accounts.

See Biography

Other Posts

The Financial Post: These tax-loss selling targets are also table-pounding buys

23 November, 2023

As we approach year-end, many investors are turning their attention to tax-loss selling, the strategy of selling investments that have experienced a loss in order to offset capital gains and potentially reduce an investor’s tax liability.

Read More

The Financial Post: Banks are taking it on the chin, but here’s why they deserve a second look

26 October, 2023

Canadian banks have long been considered a solid investment choice for a variety of reasons, but perhaps the best thing they have going for them is the oligopolistic nature of the industry. The Big Six — namely Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank…

Read More

The Financial Post: Just as in baseball, investors can do better by waiting for the perfect pitch

28 September, 2023

Major League Baseball playoffs have arrived, and the best teams will duel it out to be crowned world champions for another year. While history will undoubtedly be made, with exciting walk-offs and bitter disappointments on tap, one thing is and has always been true: hitting a baseball…

Read More

The Globe and Mail: Dividend investing works wonders - and now’s a great time to start with these three stocks

29 August, 2023

When it comes to investing in a diversified portfolio of Canadian equities, there are usually two choices: a total return Canadian equity portfolio, or a Canadian equity dividend portfolio that generates considerably higher income.

Read More

The Globe and Mail: Why this money manager thinks Canada is the best place to invest over the U.S. right now

12 May, 2023

While many investors look around the world for the best places to invest, money manager Robert Gill believes some of the best bets are at home in Canada, especially now. Mr. Gill, senior vice president and Canadian portfolio manager at Goodreid Investment Counsel Corp. in Toronto,…

Read More

The Globe and Mail: What is Topicus and why it’s a stock pick among our Investing Club members

03 May, 2023

Years ago I was fortunate enough to be invited to Omaha, Neb., to have lunch with Warren Buffett. As Warren sat down beside me at Gorat’s, his favourite steakhouse, I was bursting with questions. After a brief introduction, I asked, “What advice would you offer a young person starting…

Read More