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Should you own CSL Limited at these low prices?

The old saying of “buy into weakness, sell into strength” is a general way to say buy low and sell high. It’s unfortunate that many people shy away from something that has “fallen in value”.

Of course there will be damaged or distressed stocks on sale for good reasons, but a short-sighted market can push even good stocks down. That’s why it’s smart to go through the bargain bin to identify true discounts.

At $64.41, CSL Limited (ASX: CSL), the S&P/ASX 200 Index’s (ASX: XJO) largest biopharmaceutical company is near a 52-week low of $63.58 set back in August 2013. After such a strong run-up from about $30 in early 2012, I wouldn’t say it was a troubled stock at all, but just taking a rest after doubling in price. It is trading at 21.5 times earnings, which is in the middle of its past PE range.

It will announce full year results next week on Wednesday, 13 Aug, so we will probably get some guidance for fiscal 2015. However, long-term investors can get a feel for the short-term outlook by the steady uptrend in net profits over the past five years and the analyst consensus views that the company could grow earnings by a compound 12% annually for the next two years.

Earlier this week, Credit Suisse reaffirmed its “outperform” rating on CSL. Its biggest market, the US, is improving economically. Yet as a healthcare company that develops medical products for blood disorders as well as viral and bacterial diseases, it has good defensive qualities that support overall business and revenues.

It has a number of products in the development pipeline and medical products especially take longer to get onto the market because of the clinical testing and regulatory approvals required. That can work out to the long-term investor’s advantage for stable growth. Although the stock offers about 1.8% in dividend yield unfranked, the company has a great record of raising dividend payments.

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I think that CSL Limited is at a buying opportunity currently and definitely deserves a place in your portfolio. Growing quality stocks that pay steady dividends is how the power of compounding creates wealth for smart investors.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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