7 reasons to buy superstar stock CSL Limited

Credit: Unsplash

Biotech CSL Limited (ASX: CSL) is one of the ASX’s great success stories with the stock returning 583.2% in the past 10 years before counting dividends. Here are seven reasons why the company could have an equally bright future.

  1. CSL subsidiary Seqirus is the second-largest influenza vaccine provider in an expanding global market worth US$6 billion. Seqirus was formed in 2015 after CSL acquired Novartis’ influenza vaccine business for US$275 million. CSL believes it got a bargain price for the business because regulators would not have allowed Novartis to sell it to GlaxoSmithKline plc which bought Novartis’ other vaccine businesses at the time. The division made a loss of US$85.2 million in the first half of 2016 in line with management expectations, but could become a key growth driver once the Novartis business is fully integrated.
  2. CSL’s core business, CSL Behring, provides blood plasma therapies for a wide range of indications. It is a global leader and enjoys a number of sustainable competitive advantages including having the broadest range of quality products in the industry. The division has recently become the leader in China, a vast and nascent market.
  3. CSL derives nearly three quarters of its sales from North America and Europe and yet these regions make up a small percentage of the global population. The rest of the world represents a large growth opportunity for CSL as these countries become more wealthy.
  4. CSL will benefit from the aging population thematic that is playing out in many parts of the world. Older people are more vulnerable to influenza and more likely to require blood plasma treatments than younger people.
  5. CSL is a low-cost leader in the collection of blood plasma from donors through its vast network of highly efficient collection centres. This scale advantage extends to production where CSL utilises the most sophisticated methods available to manufacture consistent and safe products at the lowest possible cost.
  6. CSL has superb R&D capabilities which have enabled it to create the widest range of blood plasma treatments in the industry. This is attractive to customers who can use CSL as a “one-stop shop” and be confident that all products are manufactured to the same high level of quality.
  7. CSL enjoys exceptional returns on equity (ROE) thanks to the above factors combining to produce what Charlie Munger, partner of Warren Buffett, would call a “lollapalooza” effect. In 2015 ROE was 45.7% which is quite remarkable for a manufacturer with low debt levels.

Admittedly, CSL does not look cheap based on its current level of earnings, but it is easy to see how the company could continue growing earnings-per-share (EPS) for decades to come.

How 1 Man Made 100x His Money After 50

Few know, that as Warren Buffett blew out the candles on his 50th birthday cake, he had just 1% of his current fortune. Think about it: At an age when most give up hope, Buffett was just getting started on the remaining 99% of his fortune. Goes to show you that it's never too late for you to potentially get rich. Which is why we've gathered the strategies we learned from Buffett, distilled them down to 11 simple lessons, and put it in an exclusive report for you to claim. Just click here to learn more about this handy investing guide.

Motley Fool contributor Matt Brazier owns shares of CSL Ltd. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.