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2 shares you should buy right now: CSL Limited and Woolworths Limited

While all investors would prefer for their shares to be in profit all of the time, clearly this is not a realistic aim. The macroeconomic outlook is constantly changing and internal and external factors are continually challenging businesses to innovate, adapt and evolve. As such, difficult periods in terms of both financial performance and share price performance come with the territory of being an investor.

For example, Woolworths Limited (ASX: WOW) is enduring a very difficult period at the present time. An uncertain outlook for the economy has put household budgets and consumer confidence under a degree of pressure and this has pushed grocery shoppers towards lower cost, no-frills options such as Aldi and Costco. In response, Woolworths has invested in pricing in an attempt to appeal to a more price conscious shopper and bolster its sales performance. But, as its quarterly update showed, its outlook remains challenging and, in the current year, its bottom line is forecast to fall by 27.4%.

Clearly, this is disappointing and, with Woolworths not having put in place a replacement CEO, its near-term future remains decidedly uncertain. For long term investors, though, now could represent a good time to buy a slice of the business since its shares trade on a price to sales (P/S) ratio of just 0.48 versus 0.74 for the wider retailing sector. In other words, given the risks facing the company, Woolworths appears to offer a sufficiently wide margin of safety to warrant investment.

Furthermore, the outlook for the economy may be better than is currently being priced in by the market. Employment figures, GDP growth numbers and consumer confidence data were all relatively upbeat recently and could improve the outlook for the retailing sector.

Meanwhile, health care company CSL Limited (ASX: CSL) may be performing relatively well at the present time, but its shares were hit hard by a profit warning in February 2015. It caused the company’s share price to tumble by around 8% but, since then, they have recovered to move over 20% higher and surpass the $100 mark.

Looking ahead, CSL is expected to increase its earnings by almost 26% in the next financial year and its price to earnings (P/E) ratio of 26.5 indicates that further share price growth is on the cards. Key to this is the integration of the influenza vaccine business which was acquired from Novartis, while CSL’s profitability measures remain strong as evidenced by a return on equity figure of 47% from its most recent financial year.

In addition, CSL also offers a defensive earnings profile, with its profitability being less positively correlated to the performance of the economy than is the case for many of its peers. This, plus a beta of 0.6, highlights that, while not immune to disappointment, CSL’s margin of safety appears to be generous given the relative stability of its business model.

Despite this, there is another ASX stock that I believe is an even better buy than CSL and Woolworths.

It has recently been named as The Motley Fool's Top Dividend Stock For 2016 and could make a real impact on your bottom line in 2015 and beyond. And, in time, it could help you retire early, pay off your mortgage, or simply enjoy a more abundant lifestyle.

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Motley Fool contributor Peter Stephens has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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.

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