Shares of McKesson (MCK) have dropped over 10% year to date due to the heated political debate over drug pricing. Greg Nathan, portfolio manager for the FPA U.S. Value Fund (FPPFX) , said the drug distribution giant's stock is too cheap to ignore considering its quality.
"McKesson has recession resistant growth which is two to three times GDP growth and it trades at a 20% discount to the market," said Nathan.
The FPA U.S. Value Fund is down 5.1% thus far in 2016, according to Morningstar. The $129 million fund has returned an average of 5% annually over the past three years, putting it the 93rd percentile in Morningstar's large blend category.
Nathan is also bullish on fellow drug distributor AmerisourceBergen (ABC) , down 18% this year. AmerisourceBergen has been acquisitive in recent years. In 2015 the company acquired veterinary drug retailer MWI Veterinary Supply for $2.5 billion, or $190 per share, and compound drug supplier PharMEDium for $2.58 billion.
CVS (CVS) is another one of his top picks. The drug store giant has seen its shares stumble 6% so far in 2016, nevertheless, Nathan believes it has 'unmatched assets' that will continue to grow above market rate for many years to come
Finally, Nathan is a fan of Walgreens Boots Alliance (WBA) , down 2% year-to-date. In his view, future growth for Walgreens Boots Alliance will come from a mix of organic growth and acquisitions. The company plans to acquire Rite Aid (RAD) for $17 billion. Rite Aid is the third-largest drugstore chain in the U.S. The acquisition will increase Walgreens Boots Alliance's store count by about 50% to more than 12,000 locations. The companies plan to sell more than 500 overlapping stores to appease antitrust regulators.
"Walgreens Boots continues to consolidate the pharma supply chain in the U.S. and abroad," said Nathan, adding that the synergies from the Rite Aid deal will come in 'far above' Wall Street's expeactions.