I’d buy Commonwealth Bank of Australia (ASX: CBA) shares, CSL Limited (ASX: CSL) shares and Washington H. Soul Pattinson & Co. Ltd (ASX: SOL) shares, at the right price.
The price must ‘make sense’
As can be seen above, the CBA share price, WHSP share price and CSL share price has run higher in recent years.
Unfortunately, savvy investors must have a keen eye for the ‘worth’ or value of a company’s shares if they want to achieve market-beating returns.
As Charlie Munger, Co-Chairman of the $540 billion Berkshire Hathaway, says, “no business is worth an infinite”.
Therefore, although I would love to buy these three companies’ shares today, I’m also aware that the valuation of these companies is important. In my opinion, none of them is a ‘bargain’ today.
Nonetheless, here’s why I’d buy and likely never sell CSL, CBA and WHSP shares.
CSL is a biopharmaceutical giant, making life-saving blood plasma products and vaccines for a global client base. Given the regulatory environment and proprietary nature of CSL’s market and products, respectively, the sales CSL generates are very reliable. Not only that, it earns great profit margins. In my opinion, it is likely the best company in Australia!
Bank shares and profits rise and fall dramatically, which is why you should always be patient when you are considering investing a bank. Fundamentally, banks are essentially mandated by society to make a profit. For example, if CBA didn’t make a profit, its borrowers, deposit holders and the government would be deeply concerned.
I think CBA shares are overvalued but if I could buy it at a discount to its intrinsic value I would be very unlikely to sell it. You may get an opportunity to buy CBA very cheap during the next market crash. For example, during the GFC it fell from around $60 to $24 in 14 months. Those are the types of environments when a shrewd investor will buy bank shares.
‘Soul Patts’ is a great business because it is well run and essentially takes care of its shareholders’ investing decisions. WHSP has achieved exceptional returns for investors over the past 40 years by holding large chunks of ASX-listed and private companies.
However, I think it is too expensive to buy today.
Most investors forget this:
You don’t make money from selling shares — you make money from holding them.
Find great businesses, buy them at good prices and avoid selling.
Having said that, it’s vital to consider risks. For example, if an investor held more than 30% of their portfolio in bank shares right now, I’d say they are completely nuts.
This company’s dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.
Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!
Discover the name of this “new breed” of blue chip along with 2 others in our new FREE report "The Motley Fool’s Top 3 Blue Chips Stocks For 2017."
Click here to receive your copy.
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Berkshire Hathaway (B shares) and Washington H. Soul Pattinson and Company Limited. 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.