When looking for quality companies on the ASX, there are none better than CSL Limited (ASX: CSL) and Woolworths Limited (ASX: WOW). Their defensive earnings streams, strong cash-flows and bulletproof balance sheets ensure they are in a position to withstand the toughest of economic conditions. One only needs to look at the performance of both companies during the global financial crises to see this. Since 2008, the share price of CSL has climbed from around $30 to over $70 today, and Woolworths has been equally impressive increasing from around $20 to $37 today. In addition to growth in the share price, investors have benefited from dividends and share buy-backs along the way.
Despite the defensive nature of these companies, I have outlined three reasons why these companies will continue to grow going forward and should be in every investor’s portfolio.
1. Ageing populations throughout many countries in the developed world, coupled with increasing levels of wealth in emerging markets should ensure the demand for blood plasma products will continue to grow strongly going forward.
2. The potential of immunoglobulins to treat Alzheimer’s disease could result in a significant earnings boost to CSL.
3. CSL has a cost advantage over its competitors due to its size and manufacturing scale along with an extensive plasma product range. Experienced management and manufacturing expertise should result in further cost improvements.
1. Woolworths is a dominant leader in the Australian supermarket sector, and a superior management team will ensure it maintains this position for the long term.
2. The roll-out of new stores, increasing the size of the supermarket trading area and the launch of the Masters hardware stores will continue to add to earnings over the long-term.
3. Woolworths benefits from the highest margins in the sector and generates strong cash-flows which provides the company with a strong base to drive further expansion. Furthermore, this allows Woolworths to continue to pay strong and growing dividends to shareholders.