In uncertain economic times, finding a reliable ASX stock to weather the storm is crucial.
Sure, when volatility is high, it's tempting to speculate on the direction of the market or individual shares.
But markets, like Shakira's hips, don't lie.
Only those companies with the best fundamental prospects are rewarded consistently over the very long term.
As Ben Graham, Warren Buffett's original mentor, famously said, "In the short run, the market is a voting machine, but in the long run, it is a weighing machine."
One such stock that stands out to me during any economic uncertainty is CSL Ltd (ASX: CSL). The ASX healthcare stock was trading at $304.41 apiece at yesterday's close, down 1.58% this past week.
Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down more than 3% over the same period.
Known for its strong fundamentals and consistent performance, CSL is one 'SWAN' (sleep-well-at-night) stock I'd rest easy holding through a recession. Let's dive in.
Image source: Getty Images
The reliable ASX healthcare stock
A few facts stand out to me in terms of CSL being a shelter during an economic storm, aka a recession.
The first point is that healthcare is a defensive sector. Regardless of the current business cycle, healthcare industries will continue to turnover.
We won't stop treating our ill people just because there's a recession, in other words.
This is seen well by comparing CSL shares (as a representative of ASX healthcare) against the benchmark ASX 200 index during a recessionary period. The most recent was the short-lived COVID-19 recession.
An unconventional recession, it occurred as a result of the lockdowns imposed to stop the spread of the virus, and was over by 2021.
Aussie stocks were hit hard in March 2020 despite posting a recovery afterwards. Meanwhile, CSL, a reliable ASX stock, was relatively unphased, as you can see in the chart below.
Analysts at Bell Potter highlighted CSL as an attractive buying opportunity. The biotech giant has a stellar track record of generating high returns on capital over the long term. According to my colleague James, the broker said:
CSL is one of the world's largest global plasma fractionators. The plasma products have proven excellent medical applications, delivering therapeutic outcomes that are hard to achieve by other means.
In addition, CSL reported an 11% increase in revenue to US$8.05 billion and a 20% rise in net profit after tax (NPAT) to US$1.94 billion for the first half of FY24.
Growth was underscored by the performance of its CSL Behring division, particularly in the domain of immunoglobulins.
Bell Potter expects CSL's financial position to strengthen further, saying it will "continue to deleverage the balance sheet over the next few years".
What are other analysts saying?
Bell Potter isn't the only broker bullish on CSL. Macquarie also maintains a positive view, rating the ASX healthcare stock a buy with a $330.00 price target.
Some analysts even foresee CSL's share price reaching $500 within three years, a potential 64% increase from current levels.
UBS projects continued growth for this reliable ASX stock as well. According to my colleague Tristan, the broker expects revenues to reach US$14.7 billion in FY24, growing to $17 billion by FY26.
This represents 7.5% growth per year.
It also expects earnings per share (EPS) of AUD$9.44. At the time of writing, the stock is trading at a valuation of 38.5 times the last 12 months earnings.
Running more conservative estimates of 35 times P/E on UBS' EPS projections implies a market value of $330 per share at that multiple (35 x $9.44 = $330).
So even if the market does 'de-rate' some of the ASX large-cap stocks due to a recession (or even fears of) my view is that CSL's fundamentals hold up well and that it's a reliable ASX stock.
Foolish takeout
CSL is an ASX healthcare stock I'd comfortably hold during an economic downturn. Healthcare is a defensive industry, for starters, reasonably impervious to swings in the business cycle.
It also has tremendous broker support with reasonable price targets in place. But past performance is never any guarantee of future results. Always remember to conduct your own due diligence.
