Shares in CSL Limited (ASX: CSL) hit a new all time high today and may well be the best healthcare stock on the ASX.
CSL is Australia’s largest healthcare company, specialising in biopharmaceuticals. Founded in the late 1900s as the Commonwealth Serum Laboratories, CSL was sold by the Government to Australian investors via the share market in 1994 at $2.30 per share, at which time it doubled its size through an international acquisition.
Today, CSL is a global leader in blood plasma vaccines (think: the flu) and antivenoms, providing relief for potentially life-threatening medical conditions.
$1.9 Billion In Profits
From humble beginnings, CSL has grown into a $110 billion behemoth. In the 2019 financial year (FY19), CSL recorded an astonishing net profit after tax (NPAT) of $1.92 billion. The company has it expects to deliver NPAT in excess of $2 billion in the current financial year with growth forecasted to be 7-10% year on year.
The CSL share price has had a good week which has seen shares up by more than 3% despite the company not releasing any update to the market. The appreciation in the share price is likely due to a number of brokers increasing their price target for the stock.
At the elevated share price, CSL trades on a historical dividend yield of just 1.1%. However, the company has consistently increased its dividend for more than 2 decades now. There are also very few companies listed on the ASX who could lay claim to the track record of growing profits that CSL has.
The Aussie Dollar
CSL earns the majority of its profits in US dollars (USD) and therefore, a weakening Aussie dollar (AUD) serves to boost the company’s profitability when profits are converted back into AUD.
The AUD has been in a downtrend for quite some time now which has served as a further tailwind to the CSL share price. Many investors believe that this trend is likely to continue, therefore making CSL a relatively attractive proposition compared to other options.
A Worthy Alternative
Whilst I tend to think CSL is the best healthcare stock listed on the ASX, there are a number of other candidates for that title that would be well worth your consideration.
Hospital owner and operator Ramsay Health Care Limited (ASX: RHC) delivered $11.4 billion in revenue throughout FY19 and has a presence in Australia, France, Scandinavia and the UK. Despite some recent headwinds, the company is of high quality and provides a defensive stream of earnings. After a recent pullback, the Ramsay share price is starting to appear better value and might be worth a closer look.
From a quality perspective, both companies would deserve a place in almost any portfolio of ASX shares. Being of such high quality means that they are rarely trading cheaply, as investors are often willing to pay a premium. If you’re looking to buy, I’d suggest taking advantage of any short-term market volatility.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
