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Is the CSL Limited share price a buy?

Blood product company CSL Limited (ASX: CSL) is one of the best ASX listed shares that I still don’t own.

There is so much to like about the company – from its strong competitive advantage and aggressive reinvestment in R&D, to its exceptional returns on equity – that I think it would make a great staple in my portfolio.

The CSL share price has fallen 22% from its peak in September, a similar decline to other top ASX listed healthcare companies Cochlear Limited (ASX: COH) and respiratory device maker Fisher & Paykel Healthcare Corp Ltd (ASX: FPH). Is it finally time I jump in and add CSL to my portfolio?

How CSL Limited makes money

The core business of CSL is easy enough to understand; the company takes plasma from donor centres around the world and transforms it into specialised products which support antibodies or help blood to clot. CSL also manufactures various vaccines and anti-venoms.

The company’s biggest product line is Immunoglobulins which are antibodies used by the immune system to protect us against illness. Many of CSL’s products are protected by patents which is a significant competitive advantage supporting the company’s high profit margins.

Is the price right?

Just a couple of months ago shares in CSL were trading hands at $230 per share, giving the company a market capitalisation of a phenomenal $104 billion. Almost $25 billion of this has been wiped out over the last few months and the share price today has fallen back to $175. This puts the company on a forward price-to-earnings ratio of around 28x going by Reuters consensus estimates of 2019 earnings.

For a company earning returns on equity of over 40% (supported in a large part by leverage), and growing reported revenue at an annual compounded rate in the high single digits, I would be comfortable starting to add CSL to my portfolio today for my long-term horizon.

Motley Fool contributor Regan Pearson has no position in any of the stocks mentioned.

You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia has recommended Cochlear Ltd. 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 Scott Phillips.

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