Quietly, there is a battle going on.
While the mainstream news is focused on iron ore, coal and oil heading down, two companies are moving up to plant their flag at the summit of the ASX. Their objective?
To become the first S&P/ASX All Ordinaries Index (ASX: XAO) (Index: ^AORD) listed stock with a $100 a share price tag. At the height of the 2007 boom just before the GFC, CSL actually made it past the magic $100, but then a stock split meant that price became part of history.
This week's RBA rate cut sent the ASX All Ords up to a new multi-year high of 5,759. It's still far off from the 6,873 high of 2007, but when the RBA cuts its cash target rate, fixed income assets like government bonds as well as bank term deposit rates sink as well.
If investors and savers can't get a decent return with those, they will move to the stock market, which in turn starts to head north. With increased earnings and more potential stock buyers, Commonwealth Bank of Australia (ASX: CBA) and CSL Limited (ASX: CSL) may just do it, but…which one?
— Commonwealth Bank is out in front at $91.47. The biggest of the big four banks will be releasing half-year results next Wednesday, 11 February. Currently the stock trades at 17.5 times earnings. Analysts forecast an annual earnings growth rate of 6.2% for the full year. If that's correct, then full year earnings per share may be around $5.63. With the current PE, that would only give us $98.52 ($5.63 X 17.5). Close, but about $1.50 off from the prize.
Still, the investors moving over to the share market due to the rate cuts might like CBA for its hefty 4.5% fully franked yield and solid dividend growth track record. I think the short odds are with Australia's largest bank – CBA.
— CSL Limited is the largest biopharmaceutical company listed on the ASX. It reports earnings on the same day as CBA. In financial year 2014, the healthcare company raised its net profits 9% and is forecast to have an average annual 16.7% earnings growth over the next two years. It's breathing down CBA's neck at $88.20 a share and trading at 30.8 times current earnings. CSL is expanding production of its medical supplies like albumin and blood plasma, used for stabilising patients and burn treatment.
Demand for these products is building up in China as the heavily populated country is urbanising more over the next 15 years. CSL may not be the first to cross the line, but I am confident it can reach the $100 share price as long as it doesn't do a share split. The company is conducting its eighth share buyback in the last nine years, so that should help boost per share earnings a little also.
