History Says Buy the Dip on This Amazon Rival

McKesson is down on Amazon's PillPack purchase, but could bounce in Q3

by Andrea Kramer

Published on Jun 28, 2018 at 2:29 PM

Amazon (AMZN) today announced that it's buying PillPack, a small online pharmacy, sending pharmacy stocks and drug wholesalers into the red. However, if recent history is any indicator, the shares of McKesson Corporation (NYSE:MCK) -- among the worst of the S&P 500 today -- could rebound in the third quarter. Meanwhile, oil prices have been on a tear recently, surging into territory not charted since 2014. However, shares of petroleum refiner Valero Energy Corporation (NYSE:VLO) are set for their worst month in two years, and could suffer steeper losses over the next three months, if past is prologue.

MCK Stock Boasts a 100% Q3 Win Rate

Below are the 25 best stocks to own in the third quarter, looking back 10 years. At the top of the list is drug distributor McKesson, which is hosting its annual investor day today, and predicted fiscal first-quarter per-share earnings guidance above expectations. The equity has averaged a gain of 8.9% in the third quarter during the past 10 years, per data from Schaeffer's Senior Quantitative Analyst Rocky White. What's more, MCK is one of only two stocks that boast a 100% win rate in the July-September period.

best stocks to own 3Q

McKesson shares were last seen 6.1% lower to trade at $135.85 -- set for their worst day since January 2017. What's more, MCK stock earlier touched a new annual low of $131.43, but is now attempting to maintain support in the $135 area, which has provided a floor for the security since early 2017. The equity is now down 24% since its late-January annual high of $178.86 -- which occurred prior to initial speculation about Amazon's pharmacy foray. Another 8.9% pop in the third quarter would put MCK back to just under $148.

MCK stock chart june 28

For now, though, quite a few recent MCK options buyers are likely celebrating. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 2.26 is higher than two-thirds of all other readings from the past year. In other words, McKesson options buyers have picked up bearish bets over bullish at a faster-than-usual clip during the past two weeks.

VLO Stock Suffers Steepest Average Q3 Loss

Meanwhile, below are the 25 worst S&P 500 stocks to own in the third quarter, looking back over the past decade. Valero Energy shares have ended the quarter higher just 20% of the time, and have racked up the steepest quarterly losses of all, down 10.27%, on average.

worst stocks to own in Q3

While crude oil prices have been exploring three-year highs, VLO shares have been retreating from record highs. The security peaked at $126.98 on June 4, but now sits on a month-to-date loss of nearly 10% -- on pace for its worst month since February 2016. The shares are now testing support atop their 80-day moving average, which is in the vicinity of a 50% Fibonacci retracement of VLO's rally from late March to the aforementioned high. At last check, Valero stock was down 0.4% to trade at $109.14. Another 10.27% drop from current levels would place the shares around $97.93 -- below the century mark for the first time since April.

VLO stock chart june 28

Should the energy stock extend its summer slide, a round of downgrades could exacerbate selling pressure. Currently, nine of 15 analysts maintain "buy" or "strong buy" endorsements on VLO, with the other six maintaining lukewarm "hold" opinions. Plus, the average 12-month price target of $128.47 is in uncharted territory, and represents expected upside of nearly 18% to the stock's current perch, leaving the door open for potential price-target cuts.

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