What makes Warren Buffet such a successful investor?
Some will point to his dedication to investing, which is undeniable because according to his biography he went on his honeymoon carrying a heap of annual reports! However I think what really sets him apart from the rest is his strategy – he’s famed for pursuing a buy and hold strategy by looking to hold his investments forever!
As investors we too should look to buy standout stocks that could provide outstanding returns for years to come, and in my mind one such ‘forever stock’ is CSL Limited (ASX: CSL) for four reasons.
Sustainable competitive advantage
A sustainable competitive advantage not only allows a company to stay in business, but it also allows them to grow more profitable over time. The plasma protein business is both capital intensive and heavily scrutinised from a regulatory standpoint. This erects high barriers to entry and protects CSL from competitors looking to enter the industry.
Another benefit that CSL holds is scale. It runs one of the world’s largest plasma collection networks which gives it access to a large pool of scarce blood plasma. Not only does this secure the key raw material for production but it also allows the company to process large plasma pools, reducing costs per unit which makes the company more competitive.
The company derives nearly 90% of its sales overseas with both the US and Europe key markets. This provides two key advantages for investors. Firstly the company is not tied to the economic conditions of any one region, meaning that revenues are likely to be more stable. Secondly it provides more opportunities for continued growth for years to come.
Shareholder friendly management
A successful company with management that deploys shareholder capital in a suboptimal manner such as investing in ventures where they have no expertise, or hoarding cash for empire building will not make a good investment.
In the past nine years, CSL has launched seven share buybacks to return surplus funds to investors. The latest effort announced in October 2014 has the company looking to buy back $950m worth of shares. This speaks volumes about the company’s profitability as well as its intentions to look out for shareholders’ best interests.
Growing, yet defensive revenue stream
Various products are derived from blood plasma but the most profitable and in demand is IVIG. IVIG is indicated for use in a range of clinical specialities such as immunology and neurology, and is often recommended for continued use which provides a recurring revenue stream.
The use of IVIG is expected to grow with increased disease awareness from developing countries such as India and China, as well as its application to a wider range of disorders.
One minor critique about CSL is that it pays a lean dividend yield of 1.6%. However growth companies do tend to put more profits back into the business to maintain growth. If you’re an income investor then I would suggest you take a look at the top dividend stocks hand-picked by our Motley Fool analysts.
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As of 2.11.2020
Motley Fool contributor Simon Chan has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.