Vishnu Lekraj: Today, we're going to talk about two major wide-moat firms: Express Scripts and McKesson. These two firms participate along the pharmaceutical supply chain by taking drugs from the manufacturer and bringing them here to the end consumer.
McKesson, in particular, is a major global distributor that has an ability to source drugs from any manufacturer globally and bring them to the end consumer to the retail pharmacies here in the U.S. They do this more efficiently and more cost-effectively than any other retail pharmacy or manufacturer could do on their own, causing drugs to cost a lot less to the U.S. consumer.
Express Scripts does something similar but also for the insurance companies. What they do is purchase drugs and aggregate demand to bring drugs cheaper from manufacturers to the end consumer here in the U.S.
Both of these firms have faced significant pressure over the last year as short sellers and other interested parties have really beaten up these companies and their business models. However, from our perspective, these companies are wide-moat firms with deep entrenchment within the pharmaceutical supply chain. Over the longer term their entrenched position, competitive advantages, and wide moat make them excellent companies to invest in, and their undervalued stocks are making great opportunities for value investors.