The Motley Fool

It’s not just broker upgrades sending the CSL share price higher

The CSL Limited (ASX: CSL) share price hit a 6-month high of $212.84 today and it’s not just because sell side research analysts at the likes of Goldman Sachs and Citigroup remain positive on the company.

Goldmans recently put a $223 12-month share price target on CSL shares that is probably encouraging investors to bid the stock higher given today’s level is still around 5% below its target price. 

Another big factor likely supporting CSL is this week’s resumption in the fall of the Australian dollar versus the U.S. dollar, with local jobs data today coming in weaker than expected in a result that has seen the Australian dollar fall towards multi-year lows against the greenback. 

This is actually good news for local CSL shareholders though as the company earns the majority of its revenues and profits in U.S. dollars, while reporting in U.S. dollars.

Therefore the lower the Australian dollar falls versus the U.S. dollar the more CSL’s profits are worth to local shareholders.

Dividend payments for example are exchanged into Australian dollars for payment to local investors meaning as the Aussie dollar falls the value of the dividend payments rises inversely. 

It’s also worth remembering it looks like the Australian dollar will be stuck in a sideways to down trend over the years ahead as analysts expect the Reserve Bank to keep cutting interest rates.

Of course this expectation is partly priced into currency exchange rates already, while CSL shares already trade on a big valuation as the currency outlook is no secret. 

However, for investors the local macro outlook means that buying companies with exposure away from the soft local economy and towards U.S. dollar earners probably still makes sense as a strategy. Share market investing is not rocket science and fortunately some of the best long-term growth companies in the healthcare space tick the boxes.

The likes of CSL, Cochlear Ltd (ASX: COH) and ResMed Inc. (ASX: RMD) are a lot more expensive than just 6 months and I’d strongly suggest they remain on investors’ watch lists as high-quality local businesses.

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Tom Richardson owns shares of Cochlear Ltd., CSL Ltd., and ResMed Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd. 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.

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