5 reasons to buy CSL Limited shares today

Over the last year, shares in CSL Limited (ASX: CSL) have easily outperformed the ASX. They have risen by 25% while the wider index has dropped by 7%. Even health care industry peer and star performer Ramsay Health Care Limited (ASX: RHC) hasn’t been able to keep up, with its shares rising by 16% over the last 12 months.

While Cochlear Limited (ASX: COH) is up by 49% in the last year, over five years CSL has outperformed it by 165%.

Looking ahead, further capital gains are on the cards for CSL in my view. A key reason for this is its acquisition of Novartis’ influenza vaccine division. Now trading under the name Seqirus, it is the second-biggest player in the global vaccine development space and has the potential to deliver high levels of profitability in the long run.

A key reason for that is the prevalence of influenza across the globe, with 200,000 people in the US alone being hospitalised each year because of influenza. Of these, 36,000 die and so demand for vaccines against what is a relatively common but yet potentially deadly illness is high. While Seqirus is currently loss-making and undergoing a period of rapid change as Novartis’ segment is fully integrated, in the long run it has the opportunity to act as a positive catalyst on CSL’s bottom line.

As well as its influenza vaccine business, CSL has multiple segments which together provide it with a diverse offering. This is good news for investors since it provides additional stability in case one segment underperforms over the short to medium term. For example, in the 2015 fiscal year CSL derived 41% of its sales from immunoglobulins, 10% from plasma-derived coagulants, 8% from helixate and 14% from albumin, with the remaining 27% from other areas.

Similarly, CSL’s geographic diversity is also high and this protects it from challenges in one region of the globe. Just 10% of CSL’s sales are derived domestically, with North America being its major market at 43% of sales followed by Europe on 28%.

This provides CSL with the scope for a positive currency translation going forward since the RBA looks set to adopt an increasingly dovish stance towards monetary policy over the medium to long term. Falling interest rates would, of course, be likely to cause a weakening of the Aussie dollar versus other major currencies.

CSL continues to invest heavily in R&D. In the last five years it has spent US$5 billion on R&D and it now has over 1,100 employees dedicated to developing and advancing its pipeline of new treatments. And with free cash flow averaging over $1 billion in each of the last two years, it has the required level of finances to continue to invest heavily for the future.

This cash flow, alongside a diverse product range, the potential for positive currency translation, a diverse business model and the potential within its influenza vaccine business are why I think investors should be excited about CSL’s future.

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Motley Fool contributor Robert Stephens 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.

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