CSL Limited Shareholders (ASX: CSL) have been pulling their hair out for the past 12 months.
The share price fell 20% while the rest of the market climbed higher and higher from deep COVID-19 crash.
It was a shock to stocks, which were skyrocketing 25 years before the pandemic.
“It has taken most of the past 2.5 decades, but Australian investors have ended up falling in love with Australia’s largest and most successful biotech company,” said the editor of FNArena. Rudy Filapek-Vandik informed his subscribers.…
“When it looked like nothing could go wrong in the number one Australian business success story, it did.”
Her life as an ASX listed company was so charming that in just a quarter of a century it has grown to the largest market capitalization in the country, overtaking Commonwealth Bank of Australia (ASX: CBA) last year.
So what went wrong with this former market darling?
He is directly involved in the production of coronavirus vaccines for Australia, so of course the business is booming?
Filapek-Vandik offered 6 explanations for why CSL might be struggling.
CSL is so popular that there are no more buyers
Filapek-Vandik recalled that retail investors have long ignored CSL.
“No exit. High mark. A sophisticated business model based on science and investment. Mostly active in foreign markets, ”he said.
“Who in their right mind would invest in this?”
Then, after decades of outperforming, public opinion changed from roughly 2016 to 2017.
“The conversation has shifted from“ expensive ”to“ you pay for quality ”; and more and more investors, both professional and retail, are joining the fan club, ”he said.
“The growing enthusiasm was fueled by the continued existence of CSL shares. First more than $ 100, then $ 200 and even $ 300 is not too far. “
By 2019, it has become a mandatory promotion among retail shareholders.
“What happens when everyone gets a guaranteed good thing? This means that there will be no logical buyers left when the money is transferred elsewhere, ”said Filapek-Vandik.
This is exactly what happened when the coronavirus pandemic hit.
“This money left in reserve last year was very much looked for elsewhere because the opportunities that could be obtained were unique, leaving early safe harbors and better results like CSL hanging high and dry.” said Filapek-Vandik.
“There is definitely a danger of persuading the last skeptic, since stock prices need a marginal buyer to provide natural support.”
Other businesses have relatively better growth or higher dividends
Since the COVID-19 crash last year, CSL has offered neither impressive dividend yield nor explosive growth potential – compared to other ASX businesses.
Filapek-Vandik cited how “low-quality cyclical issues, small caps and money-eating business models depreciated 50% or more” during the 2020 crash.
“But now that dynamic has changed, with previous losing companies offering potential growth of 50% or more, plus, in some cases, a return on shareholder dividends,” he said.
“By now, the big question has become: Why stick with a company that offers little growth and no profit when I can get both elsewhere? Many investors don’t even think about it for five seconds. “
The rise and fall of the Australian dollar, and the rise
Essentially an export business, CSL’s fortune is inversely related to the value of the Australian dollar.
Nine years ago, the Australian dollar rose to $ 1.13 thanks to the GFC’s recovery efforts.
Accordingly, the price of CSL shares began to rise after this peak was passed.
“Today’s situation is not so extreme, but important nonetheless. AUD rallied quickly from the bottom [US$]0.60 to about 0.80. Since the beginning of 2021, the growth has been about 0.70, let’s say 0.77, ”said Filapek-Vandik.
“Two weeks ago, at its lowest level, CSL’s share price fell more than 13% since the beginning of the calendar year.”
No growth, no value
CSL seems to have misjudged market sentiment both last and this year.
Last year, when high tech companies soared after the March crash, that “growth” was not enough.
Then, at the end of 2021, an sometimes dramatic change in value began.
“What really gave momentum to the acceleration was the emergence of ready-to-use vaccines plus the rise in government bond yields around the world. Soon, the global narrative turned into “inflation is coming,” Filapek-Vandik said.
“They reduce the impact of technology and high-value, quality and growing stocks. Again, CSL is on the wrong side of the market momentum. ”
International Plasma Business Suspended
Although CSL operates the world’s second largest viral vaccine business, its largest source of revenue is still idle.
Filapek-Vandik explained that in the pre-COVID world, CSL had “the largest and most efficient global network” of plasma collection centers.
“Just as Superman is weakened by kryptonite, the COVID-19 virus spreading across the US continues to prevent donors from visiting plasma collection centers – and this puts pressure on the global plasma industry, in which CSL remains the most efficient operator.”
The current suppression of demand will not last forever, but investors seem to be waiting for a confident improvement in the situation.
“So we are waiting. For the Biden administration to successfully introduce vaccines. For a life without limits. As industry data collection data signals that the worst is in the past and plasma collection growth is returning. “
Selling immunoglobulins is bread and butter for CSL, but a new competitor will soon emerge.
“Biotechnological Argenx SE (EBR: ARGX) is currently testing an FcRn drug for the treatment of chronic inflammatory demyelinating polyneuropathy (CIDP) and shows great promise, ”said Filapek-Vandik.
“CIDP is a rare disease that treats only 40,000 patients annually, but accounts for about US $ 3 billion out of US $ 12.8 billion in annual global immunoglobulin sales.”
But that is still a long way off, even if all goes well for Argenx and the FcRn industry.
Credit Suisse is one of the observers who believes the market is overly panicked over a potential competitive threat.
“According to Credit Suisse, there is no shortage of demand, so the immunoglobulin lost due to FcRn will simply find a buyer elsewhere,” Filapek-Vandik said.
Last month, Credit Suisse upgraded its CSL stock to Best of Others with a 12-month target of $ 315. It is currently trading at $ 264.91.
Where to invest 1000 dollars right now
When investment expert Scott Phillips gives stock advice, he might pay to listen. After all, the flagship newsletter Motley Fool Share Advisor, which he’s been running for over eight years, has given thousands of solvent contributors a choice of stocks that have doubled, tripled, or even more *.
Scott has just revealed what he thinks is top five ASX stocks so that investors can buy now. These shares are selling at very low prices and Scott thinks they are a great buy right now.
* Refunds as of Feb 15, 2021