The CSL Limited (ASX: CSL) share price printed as high as $199.75 this morning and is just a whisker off the psychologically important $200 mark despite the healthcare giant releasing no news to the market.
On January 1 2019 I made CSL my top stock pick for January,when it sold for $185.38 which means it’s up around 8% since then and roughly in line with the market.
However, I expect over the medium term it will go on to thump the market’s returns despite today’s lofty valuation.
This is because CSL is one of not-too-many businesses on the local market that are able to consistently grow profits while investing heavily in the growth products of tomorrow.
The consistent profit growth comes about thanks to the moat provided by the complexity of its healthcare products that also provide it some pricing power.
Its return on invested capital is also 25.9% which thumps the returns of most of its blue-chip share peers and partly explains why the company is able to consistently outperform the market.
Should I buy?
On a trailing FX-adjusted basis CSL earned A$5.40 per share in FY 2018 to put it on 37x trailing earnings.
However, this shows us next to nothing, as it’s the full year result for FY 2019 that counts, with the group forecasting profit growth around 14% while investing up to US$200 million in research and development.
In my opinion CSL shares are a buy at today’s valuation, while other leaders in the healthcare space such as Cochlear Ltd (ASX: COH), Ramsay Health Care Limited (ASX: RHC) and ResMed Inc. (ASX: RMD) also trade on high valuations likely to divide investors as to their worth.
However, CSL is probably the best-performing blue-chip growth stock on the S&P/ ASX200 (ASX: XJO) over the past 5 years and probably longer.
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You can find Tom on Twitter @tommyr345
The Motley Fool Australia has recommended Cochlear Ltd., Ramsay Health Care Limited, and ResMed Inc. 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.