Well known companies with massive market caps are often quite expensive to buy, but they can be highly resilient in turbulent economic times. Investors who are looking for a safe place for their wealth should put these three stocks on their watchlist, and consider purchasing them in times of market volatility.
CSL (ASX: CSL) is perhaps the most impressive company on the ASX. Founded in 1916, CSL’s core business is so essential that it was originally a statutory corporation called Commonwealth Serum Laboratories.
The company has almost 100 years of experience developing and selling vaccines and blood plasma products. Today, it supplies many countries with blood plasma products and has major operations in the USA, Germany and Switzerland. The company also has expertise in blood fractionation, and is in charge of separating blood into its component parts for several countries in the Asia Pacific region.
On top of that, the company also supplies influenza vaccines. Investors should recall from history classes the immense havoc influenza can wreak on populations. It’s fair to say that it would be a foolish government that soured relations with its supplier of vaccines. The constant mutation of the virus means that it is no small task to have the right vaccine at the right time.
At a share price of $67.60, CSL has a market capitalisation of over $33 billion and yields well under 2%. Without a doubt, the company is priced for solid sustained growth, but it should be the first stock you look to when the next crash comes.
Woolworths (ASX: WOW) is another company with a wide business moat. The extensive distribution network means that Australians rely on Woolworths to supply them with groceries and affordable fresh food. The best part about Woolworths’ business model is that the company can usually sell its products before it has to pay its suppliers.
However, Woolworths also owns an (unsuccessful) hardware business, supplies Australians with large amounts of liquor, and milks problem gamblers via its network of high-loss poker machines. Recently, Woolworths elected not to proceed with a proposed takeover of Hong Kong’s ParknShop. This decision is a credit to management, as the purchase would have entailed unnecessary expansion risk, and the offering price was certainly no bargain.
As with CSL, Woolworths is priced at a premium. At the current share price of $34.40, Woolworths has a market capitalisation of $43 billion and pays a fully franked dividend of about 4%. It’s currently trading at a similar price as prior to the GFC, and investors should consider buying shares in times of economic turmoil.
Ramsay Health Care (ASX: RHC) is perhaps the most attractive of these sturdy businesses, at the current share price of just under $38. A relative baby, Ramsay’s market capitalisation is $7.7 billion. As with CSL, Ramsay is trading on a trailing yield of under 2%. However, because it is much smaller, Ramsay should be able to increase profits (as a proportion of existing profits) more easily.
Ramsay owns hospitals and surgeries in Australia, Indonesia, France and the UK. However, the Asia Pacific contributes most of the profits — $268.2 million in FY 2013 compared with just $22.6 million from Europe. Since 2007, the company has consistently achieved a return on equity of over 10%, suggesting that the company will be able to continue to expand profitably for years to come. The aging population in Australia is certainly a major tailwind. Ramsay Health Care is undoubtedly a success story with the share price up 785% in the last 10 years.
All three of these companies provide services that are essential to the well-being of a developed society, with the exception of Woolworth’s liquor and gambling businesses. Of the three, I think CSL has the best business, although it is currently too expensive. At today’s prices, Ramsay Health Care is the only one that I’d consider buying. Investors will have great opportunities to buy these companies when there is a broader market panic, such as the panic that occurred in 2008.
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Motley Fool contributor Claude Walker does not own shares in any of the companies mentioned in this article. Follow @claudedwalker