Why this fund manager is underweight CSL shares

CSL Limited (ASX: CSL): Buy, hold, sell?

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It's arguably the S&P/ ASX200's best blue-chip growth shares, but fund manager Yarra Capital has recently revealed its 'underweight" CSL Limited (ASX: CSL) for a few reasons worth noting.

According to its 28 February 2019 update Yarra's principal concern over CSL is its valuation.

"We remain underweight CSL based on its forward valuation (30.2 times P/E and 21.0 times EV/EBITDA on a 12- month forward basis), which we believe appropriately captures the current earnings outlook at this time. The growth outlook for CSL's key plasma products remains robust, with the company continuing to strengthen its relative market position through long-term investment in capacity, product innovation and collection centres." it told investors.

There's no doubt CSL shares look on the expensive side and we saw with its recent interim profit report that unless it delivers right to the top of investors' expectations the stock is in danger of a sell off.

It's guiding for a profit around US$1,950 million over fiscal 2019 which would represent double-digit growth on a strong result in the prior year, while it also continues to invest heavily in capacity and new products as Yarra references.

CSL is not the only large-cap healthcare stock trading on an expensive valuation with the likes of Cochlear Ltd (ASX: COH) and Ramsay Health Care Ltd (ASX: RHC) also sporting high price-to-earnings multiples. As such investors will need some patience and luck if they want to try and time the market for a better entry price.

Motley Fool contributor Tom Richardson owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and Ramsay Health Care Limited. 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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