McKesson (MCK) Showing Bearish Technicals But Gets 5 Star Strong Buy Rating From S&P

Posted: Friday, February 26, 2010 9:10 AM EDT

McKesson (NYSE: MCK) closed yesterday at $59.14. So far the stock has hit a 52-week low of $33.13 and 52-week high of $64.98. McKesson stock has been showing support around 57.99 and resistance in the 59.79 range. Technical indicators for the stock are Bearish and S&P gives MCK a very positive 5 STAR (out of 5) strong buy rating. MCK appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a May '10 57.50 covered call for a net debit in the $55.44 area. That is also the break even stock price for this trade. This covered call has an 85 day duration, provides 6.26% downside protection and a 3.72% assigned return rate for a 15.96% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the MCK Jan '11 40 Call and selling the May '10 57.50 call for a $16.00 debit. The trade has an 85 day life and would provide 5.31% downside protection and a 9.38% assigned return rate for a 40.00% annualized return rate (for comparison purposes only). McKesson has a current annual dividend yield of 0.82%. [FBB-Seven Summits Research]

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