The Mesoblast Limited (ASX: MSB) share price has been garnering a lot of attention recently. But here's why I would buy today's CSL Limited (ASX: CSL) share price over Mesoblast.
The Mesoblast share price has surged more than 126% in 2020. By contrast, the CSL share price remains relatively flat for the year. Despite the disparity in share price performance, I think that CSL provides greater potential for long-term investors.
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CSL and COVID-19
In my opinion, CSL is one of the highest quality companies listed on the ASX. The company has assured shareholders that it's in a strong capital position and also reaffirmed its profit guidance for FY20.
CSL is also part of Australia's solution to developing a vaccine for coronavirus. The federal government has backed the biotech giant to make enough vaccines for the entire Australian population.
In addition to manufacturing a potential vaccine, CSL has also been working on other possible therapies for COVID-19 by collecting plasma from recovered patients.
Why is the CSL share price flat for 2020?
CSL's muted share price action could reflect portfolio rotation among investors. As companies with greater risk profiles like Mesoblast gain momentum, investors could be selling their shares in blue chips like CSL.
In addition, there are some concerns about a decline in plasma collection volumes. In a trading update released in early April, CSL acknowledged that plasma collection volumes are expected to be impacted by the pandemic.
As an offshore earner, the CSL share price could also be impacted by a rising Australian dollar.
Is Mesoblast just flavour of the month?
There has been a trend during the pandemic of cash hungry companies promoting potential treatments for COVID-19 and raising capital to fund research trials.
Mesoblast made headlines in April after it announced promising results for its Remestemcel-L (Ryonsil) treatment for COVID-19.
In a previous article, I highlighted that there are two important catalysts affecting the Mesoblast share price. The most recent was the Oncologic Drugs Advisory Committee (ODAC) voting in favour of Mesoblast's Ryoncil therapy.
Approval from ODAC is a key step in Mesoblast gaining full approval from the United States Food and Drug Administration (FDA). However, the FDA is yet to make a decision which it is scheduled to do on 30 September.
Which should you buy?
Depending on your appetite for risk and investment goals, you may have a different take on which company to invest in.
In my opinion, CSL is a proven performer over the long term. But a prudent strategy could be to wait until CSL reports its full-year results next week before deciding to buy shares.
Despite the euphoria surrounding the Mesoblast share price, I think that many investors need to factor in the risk that the company's clinical trials fail to reach their endpoint. Even if Mesoblast gains approval from the FDA, the company still needs to manufacture its products at a cost-effective price.
