It is rare that you find quality companies trading below their intrinsic value. However, it is even rarer when this company is arguably the highest-quality stock on the ASX. The stock I am referring to is CSL Limited (ASX: CSL). An investment in CSL 10 years ago would have seen your investment increase by an incredible 800%. For comparison, an investment in BHP Billiton Limited (ASX: BHP) over the same period would have seen your money increase by 206%, and that during the biggest mining boom in Australia's history.
CSL is constantly overlooked by investors due to its low dividend yield when compared to the big banks and Telstra Corporation Ltd (ASX: TLS). However, the capital growth achieved by investing in CSL would have absolutely smashed the returns received by investing in Telstra and the big banks. Rather than distributing excess cash to investors by way of dividends, CSL is able to re-invest earnings into the business to drive higher profits year-on-year.
Following a fall of 5% in the share price of CSL over the past six months on no negative news, now is the perfect time for long-term investors to pick up shares. CSL is one of the world's top three blood plasma manufacturers. The huge size and scale of CSL's operations provide it with a significant competitive advantage and make it difficult for competitors to enter the industry. CSL has a wonderful history of innovation which will continue to drive future profits. Ageing populations in developed countries, along with the growing expenditure on healthcare in emerging economies should result in high industry growth rates over the next decade, which should see CSL's earnings increase strongly.
Further, while I would never purchase a stock based on foreign exchange rates, a fall in the Australian dollar would also provide an increase in CSL's reported earnings as a result of its offshore earnings being converted to Australian dollars.
CSL is also currently embarking on a huge share buyback program which indicates management are of the view that the shares are currently undervalued. CSL is a defensive growth stock and the current price of $66 represents great value for such a high-quality company set to grow earnings over the long term.
