There are couple of very good reasons why the CSL Limited (ASX: CSL) share price could be a buy right now.
CSL is one of the biggest biotechnology businesses in the world. It’s headquartered in Melbourne, Australia.
Why could the CSL share price be good to think about?
CSL is probably one of the highest quality ASX 20 blue chip shares that Aussies can buy. But, despite that, CSL shares haven’t performed very well. Over the last month it’s down 7% and it’s down 18% since 24 November 2020.
The company hasn’t had much luck when it comes to COVID-19. The University of Queensland vaccine had to be stopped and now there are question marks about the AstraZeneca vaccine, which is what CSL has been tasked to produce at its facilities in Australia. The COVID-19 vaccine can help CSL generate short term earnings whilst the company works through the COVID-19 impacts of its plasma collection division in the US.
The market initially liked the CSL HY21 result which showed that reported net profit after tax (NPAT) grew by 44% in constant currency terms to US$1.81 billion.
CSL reported that there was solid growth in its core immunoglobulin portfolio, a successful transition to its own distribution model in China, an “exceptionally strong” performance by Seqirus (the vaccine business) and a full financial recognition of the contracted income for the UQ COVID-19 vaccine in the first half, after the program’s termination.
These are the two main reasons why I think the CSL share price could be worth looking at:
R&D investments
One of the main reasons to like CSL shares is its strong commitment to investing in research and development (R&D). It’s this R&D expenditure that unlocks the next group of products for CSL and this can lead to higher revenue and profit.
CSL has a high level of commitment to R&D, spending roughly 10% of its revenue each year to develop new treatments.
In the FY21 half-year result, it spent US$427 million and it’s expecting to spend 10% to 11% of revenue on R&D this year. This amount includes the COVID-19 vaccine cost recovery.
Remember, CSL could easily just stop spending on R&D and appear much more profitable. But that short term decision wouldn’t be good for long term profit or its market position against competitors. It’s the R&D that helps profit grow over the long term.
CSL share price weakness
It’s better to buy businesses when the price is cheaper rather than higher, right? Well, today’s CSL share price is cheaper than the bottom of the COVID-19 share market crash and it’s almost the lowest it has been over the last 12 months – apart from earlier in March 2021.
With some opportunities, the best time to buy is when a lot of the market don’t want to think about buying shares of a business – like many stocks during March 2020 and April 2020. This could the right time for CSL shares.
CSL is a high quality business that still has a long term future of generating good profit for shareholders. Healthcare is one of those sectors that may be able to count on higher and higher demand due to better products being released, an ageing population and a higher conviction of governments to protect their populations from biological issues – like pandemics or cancer. Just look how strongly other top class ASX healthcare shares are performing like Pro Medicus Ltd (ASX: PME) and Volpara Health Technologies Ltd (ASX: VHT).
I think CSL is one of the higher quality ASX growth shares, particularly when it comes to blue chips.
