Rudi’s View: What’s Wrong With CSL?

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Jul 16 2020

Dear time-poor investor: the debate continues about what to expect from economies and equities in the year(s) ahead, plus a glimpse into the headwinds affecting the CSL share price

In Part One of this week’s Weekly Insights:

-What’s Wrong With CSL?
-T.RowePrice: Market Optimism Is Deceiving
-Corporate Debt: New Records
-Conviction Calls

What’s Wrong With CSL?

Seldom have we seen such a lacklustre share price performance from all-around star stock CSL ((CSL)) when regular defensives including Woolworths ((WOW)), Coles ((COL)) and ResMed ((RMD)) are putting in a stellar performance.

The question is on many investors’ lips these days: what is wrong with CSL?

The answer, it seems, is two-fold. On the one hand investors now realise the virus and related lockdowns are impacting on plasma collection, in particular in the south of the USA where infection numbers are thriving (so to speak).

The offsetting factor is that a higher US unemployment rate, equally a result of the pandemic, should translate into more donors, which should boost CSL’s collection abilities.

The company is offering higher incentives to US donors to compensate for the temporary interruption, and this will put pressure on its margin.

The public debate that is currently raging behind the scenes is whether one cancels out the other, or whether we are witnessing a sequence of events, i.e. first comes the dip, then to be followed by a firm boost.

Further complicating the debate is that global demand for CSL’s flu vaccines remains robust, suggesting potential for an upward surprise.

Then there is the other matter of growing potential for increased competition with a number of biotech firms across the globe successfully trialing potential future treatments that, if successful, will eat into CSL’s core products and markets.

It is this potential future competitive threat that is possibly weighing most on the share price post-April.

Keen observers will have noticed CSL is not acting like the proverbial sitting duck, keeping the fingers crossed and hoping for the best. The company announced two acquisitions already with the latest, a gene therapy product for haemophilia B, (more) tangible proof the company is not afraid to potentially disrupt itself, according to commentary by various analysts post the announcement.

Of course, one of the major attractions for owning CSL shares is the in-house pipeline of future products under development. Here the company should have a few announcements to make in 2021.

Put it all together and the correct conclusion is probably that the market genuinely doesn’t know what to do with CSL shares at the moment.

A dilemma that is further complicated by diverging views on the direction of the US dollar, a key component for translating CSL’s profits for shareholders in Australia.

One observation stands irregardless* and that is I have seldom spotted so many professional investors declaring they are buying CSL shares with a longer-term view in mind.

From Roger Montgomery, to T.RowePrice, to UBS, and numerous others; they all declared recently they have been buying as CSL shares continue to lag the overall market, instead bobbing around the $280 level – quite the distance from the $341 seen earlier in the year.

Anyone can draw his/her own conclusions from this apparent discrepancy.

*Irregardless was recently added to the Merriam Webster dictionary, causing public uproar among those aficionados of the English language who believe just because words creep into the daily usage it doesn’t mean they should thus be officially recognised.

Irregardless looks like a merger between irrespective and regardless and, apparently, Maria Carey sang the word on her 2018 album.

In case anyone wondered: irregardless had already been recognised by the Oxford English Dictionary, and it means exactly the same as regardless.


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