CSL Limited (ASX: CSL) shares sit around 5% below their 52-week high, and while I wouldn’t be buying at today’s price level I would be looking to hold. Here are two reasons why.
About CSL
Founded in the late 1900s as the Commonwealth Serum Laboratories, ‘CSL’ was sold by the Australian Government to shareholders via the ASX in 1994 at only $2.30 a pop. It used the money to double its size through an international acquisition. CSL is now a global leader in blood plasma vaccines (think: the flu, snake bite anti-venoms, etc.), providing relief for potentially life-threatening medical conditions.
1. The Products
CSL’s portfolio of products and vaccines is unmatched by any other Australian company. The products that CSL produce often don’t have replacements or competitors which provides the company with a competitive advantage, or what is sometimes called a moat.
CSL’s research and development spending ensure that it can remain competitive and continue to produce life-saving vaccines. In the last five years, the company has spent US$2.9 billion on R&D.
If a competitor were to try to bring a similar product to market, there is a whole host of challenges in the form of clinical trials, regulations and R&D costs. CSL’s 40% plus return on equity (ROE) is evidence of the company’s sustainable competitive advantage which makes it, in my opinion, one of the highest-quality companies on the ASX.
2. Global Diversification
CSL does not rely on Australia for production or revenue and is, therefore, less exposed to the fluctuations in the Australian economy.
CSL currently has operations in more than 35 countries and eight manufacturing sites spread across six countries.
While the US accounted for around 45% of CSL’s revenue in FY18, the remainder of the revenue was split between Australia, Germany, Switzerland, the UK, China and a host of smaller countries that collectively made up around 21.5% of revenue.
What Now?
While the CSL share price may fluctuate according to investor sentiment, the company itself can rely on its portfolio of irreplaceable products and its global market to weather almost any storm.
That’s why I wouldn’t be concerned by all the talk of recessions if I was a CSL shareholder. As long as it’s treated as a long-term investment, CSL is a company I would be very happy to hold.
For other great businesses, have a look at the companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
