Investors are aware 2013 was a good year for the Australian stock market with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) gaining 15%. Of course constituent companies of the ASX 200 Index all fared differently to the average. While some may have provided shareholders with returns close to the index's return, many others significantly underperformed or outperformed.
Global biopharmaceutical-company CSL (ASX: CSL) was one firm that provided solid outperformance for shareholders, producing a share price gain of nearly 27%. After such an impressive year, shareholders and investors need to consider what's in store for the company in 2014.
Outlook
With CSL spending US$427 million on research and development in 2013 there is no doubt the company cares about its future. With a multitude of treatments at different stages of development the long-term outlook is positive. The near-term outlook was provided by management at the Annual General Meeting. It's for a 10% increase in profit after tax, suggesting another year of solid growth is in store.
Risks
As Warren Buffett remind investors: The first rule of investing is to not lose money. The second rule of investing is to not forget rule number one.
To my mind the greatest risk with CSL is overpaying for the stock – an issue which is discussed below in Valuation. The risks to earnings from CSL appears slight. The company is well diversified by product lines and by regions. With world class, life-saving products there is little chance of CSL's businesses becoming extinct, which makes the business risks associated with the stock relatively limited.
Valuation
CSL is an outstanding company with a strong growth profile thanks to its portfolio of products both in use and in development. While valuing a growth stock has its own set of issues, perhaps the most difficult factors to consider when analysing CSL is the high share price the stock currently trades on.
With a forecast financial-year 2014 price-to-earnings ratio of 25.7, there already appears to be a significant quality premium and growth premium built into the stock's price.
Foolish takeaway
The ASX is home to a select group of high quality global healthcare companies. This group includes CSL, as well as Sonic Healthcare (ASX: SHL), Cochlear (ASX: COH) and Ramsay Health Care (ASX: RHC). All four stocks are worth monitoring for any opportunity to purchase when the pricing relative to their valuations becomes appealing.
