Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Medallion Financial managing director Michael Wayne picks the ASX shares to buy now and hold onto long term.
The ASX share for a comfortable night's sleep
The Motley Fool: If the market closed tomorrow for four years, which stock would you want to hold?
Michael Wayne: A boring response would be to buy an index ETF, for instance. Again, you could buy an Australian index ETF — or a potentially NASDAQ — as a long-term hold wouldn't be the worst thing at the moment, given the magnitude of the falls that we've seen. You can also look at different listed investment companies, that way you're getting diverse exposure.
Because, look, it's very difficult to say with any certainty what a company is going to be doing in four years. Obviously, there's a lot of updates between now and then from the business but I think the company, one that I referred to earlier, like CSL Limited (ASX: CSL) is as good a bet as any, I think, on a four-year basis, if you couldn't watch the markets or even look at it.
It's had a wonderful track record, the business is growing at a rapid rate against the revenue line and the earnings line. Essentially, it's a company which has a plethora of different biotech type projects under the one umbrella. You're getting exposure to a whole range of potential kickers in growth.
It's a company that we think has the runs on the board… has a very solid and renowned management team and also has a very good balance sheet for that. CSL will be a long-term company to hold.
MF: As you say, it's almost like it has four or five companies in one, hasn't it?
MW: Yeah, they've got all different projects and all different drug developments that they're looking to target for all different types of medical conditions. And they're able to allocate the funds to the projects that they believe have the biggest chance of success.
Obviously, because they've been doing this for so long, they have the best insight and the best experience, which improves your chances of success immeasurably, compared to if you were to go out into the market and buy an exciting biotech company. But [for] those single product biotech companies, it's very much about finding the outcome.
Sure, they might succeed, they might go out and get FDA approval and enter all sorts of markets. But on the other hand, they might not meet those clinical trial requirements and they might end up amounting to nothing.
At least with CSL, you're getting a diversified portfolio of biotech projects in one place. And they're also able to fund themselves internally because they've got, obviously, a lot of different products, from the blood plasma to the flu vaccine, haemophilia vaccines, all sorts of things which are highly profitable. They're able to then use the cash flow generated from those existing products to fund their research and development in new and emerging products, unlike, again, a single product biotech.
