CSL share price in focus
CSL is a global biotechnology company that creates and delivers life-saving medicines, aiming to protect public health and improve the quality of life for those with life-threatening conditions.
The company operates through three main divisions: CSL Behring, CSL Seqirus, and CSL Vifor. Behring, acquired in 2004, focuses on manufacturing and distributing blood plasma products. Seqirus, formed from the rebranding of BioCSL and the acquisition of Novartis’ flu business in 2015, develops flu-related products and provides pandemic-related services to governments. Vifor specializes in products for iron deficiency and nephrology (renal/kidney care).
CSL has built a strong reputation among Australian investors for its reliability and consistent dividend payouts, making it a popular choice for those seeking exposure to the growing healthcare sector. Many view CSL as an indirect investment in the rising global demand for healthcare.
The appeal of ASX Healthcare shares
The S&P/ASX200 Healthcare Index (ASX: XHJ) has returned 1.66% per year over the last 5 years compared to 3.78% per year from the broader ASX 200. Here are three key reasons to consider adding a healthcare company like CSL to your investing watchlist.
Sticky revenue
Healthcare spending (in most cases) is essential spending, making it one of the last areas people cut back on during tough economic times.
Unlike cyclical businesses affected by commodity prices or seasonal demand, healthcare companies benefit from stable and consistent revenue streams. We sometimes call this ‘sticky’ revenue. Evidence of this fact is that healthcare was the best performing sector during the GFC.
Growth potential
Global healthcare spending, particularly in the US – which accounts for over 40% of the global total – is projected to grow significantly. Estimates for US growth are 7% per year from 2022 to 2027, reaching US$819 billion.
Within the broad sector of healthcare, certain sub-sectors stand out for their additional growth potential. For example, healthcare IT, data solutions, and ‘software-as-a-service’ (or SaaS) companies are forecast to grow at more than 15% per year from 2024 to 2030, a rate that would get most investors interested.
The ethical investor
A recent Morgan Stanley survey revealed that more than half of investors plan to increase their allocation to sustainable investments in 2024. With growing interest in ‘ethical’ and ‘sustainable’ investing, sectors like healthcare that provide essential public services are well-positioned to attract new capital and investors.
CSL share price valuation
The S&P/ASX200 Consumer Discretionary Index (ASX: XDJ) has generated returns of 1.66% per year over the last 5 years. That’s compared to 3.78% per year from the broader ASX 200. The consumer discretionary sector covers a wide range of goods and services, so it can be hard to compare companies in this group. However, there are a few things you might want to consider when investing in a consumer discretionary company like CSL.
Economic environment
Consumer discretionary companies usually experience their best performance when interest rates are low. It’s fairly intuitive – when interest rates are low, you’re more likely to go out and buy those ‘nice-to-haves’ or things that you may not really need, but you certainly want. That could be the latest iPhone, a European vacay or that Ryobi power drill you’ve always wanted – it all comes under this category.
Despite the current high interest rate environment, CSL has still managed to grow revenue by 12.8% per year over the last three years.
Dividends
The dividends you’ll receive can vary with the current economic environment, but historically many of the big ASX consumer discretionary shares have been reliable dividend payers.
CSL offers a current dividend yield of 1.4% and over the last 5 years has averaged 1.5%.
Familiarity
We often hear the mantra, ‘invest in what you know’. If you take that to heart, consumer discretionary companies could make a lot of sense. These companies tend to be household names and brands you see everyday.
You probably have a better idea how CSL Ltd make their money then some niche tech company or a B2B industrials company. This doesn’t necessarily mean performance will be any good, but they’re definitely easier to get your head around when you’re new to investing.
