Could CSL Limited (ASX: CSL) be the best ASX share to own in 2020?
CSL certainly has a long history of making its investors very satisfied customers. The CSL share price is today sitting at $325.46, but was just last week making a new all-time high of $342.75.
That means that CSL is up over 70% in just the last year alone. If you stretch it out to five years, CSL shares have seen a 252% gain while a ten-year horizon makes it 930%. None of those figures include dividend returns either, which would have helped pad out those numbers even further.
How has CSL managed such impressive gains?
It's a combination of stellar underlying performance of the company, a defensive earnings base, a falling Australian dollar and the willingness of the market to assign a higher and higher price-to-earnings multiple for CSL shares.
CSL is in the medical field and specialises in blood medicines and research as well as vaccine production – particularly for the influenza virus (the flu). This means that the profits CSL can generate are (unlike most companies) largely disconnected from the broader economy.
Since CSL reports said profits in US dollars, the cliff drop that our own Aussie dollar has gone over compared to the greenback since 2012 has vastly boosted the company's earnings power.
Today, CSL trades on a price-to-earnings ratio of over 50. That tells us that the market is willing to pay a handsome premium for each dollar of earnings CSL generates (which would be largely influenced by the factors discussed above).
So why are CSL shares a buy in 2020?
Looking at the above statistic, you might be forgiven for thinking CSL doesn't represent a screaming bargain (a sentiment I still share somewhat). It's an extremely high earnings multiple to place on a company that was last week the largest company in Australia (albeit briefly).
But here's why CSL might still be a buy for 2020 today: the coronavirus.
The coronavirus has been a devasting outbreak and one who's spread appears not to be slowing down.
CSL (as a vaccine manufacturer) might be well placed to assist in the efforts to roll-back this insidious disease – which in turn would make it a share I would be proud to have in my 2020 portfolio.
The company released this statement recently on its views on helping with the coronavirus situation:
"Coronavirus is quite different to influenza virus so it is not a core area of focus for CSL or Seqirus. However, we have investigated possible adjacencies in expertise, technologies and facilities that might be able to contribute to the global effort and are pleased to advise that we have partnered with the University of Queensland's COVID-19 vaccine development program.
We will provide technical expertise as well as a donation of Seqirus' proprietary adjuvant technology, MF59, to their pre-clinical development program."
Foolish takeaway
CSL is clearly making a contribution to the efforts to combat this virus, and that's why I think it would be a very prudent stock to buy today.
We don't know how long this dreadful outbreak will drag out, but investing in companies that could be part of the solution is a good move for your 2020 portfolio in my view.
