Warren Buffett is considered one of the world's greatest investors. Through investment picks, he has led his company, Berkshire Hathaway, to become one of the world's largest and most successful companies.
Considering he only invests in quality businesses, it's worth asking whether CSL Ltd (ASX: CSL) shares would be appealing.
CSL is a global biotechnology company with a portfolio of "lifesaving medicines". They include those that treat hemophilia and immune deficiencies, therapies for iron deficiency and nephrology, and influenza vaccines.
The ASX healthcare share may not be the most well-known name in Australia compared to brands like Commonwealth Bank of Australia (ASX: CBA), Telstra Group Ltd (ASX: TLS) or Woolworths Group Ltd (ASX: WOW). However, with a market capitalisation of $145 billion (according to the ASX), it's bigger than Telstra and Woolworths combined.
The question is – would Warren Buffett want to invest in CSL shares, considering it has a number of positives?
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What are the attractive features of the ASX healthcare share?
CSL has a long history of profit growth — the company has delivered impressive compounding of earnings over the last decade.
The last financial year was a good example of that. In the FY24 result, CSL grew its revenue by 11% at constant currency rates to US$14.8 billion. This helped net profit after tax (NPAT) rise by 20% to $2.64 billion. And the business grew its full-year dividend by 12% to US$2.64 per share.
CSL aims to invest roughly 10% of its annual revenue into research and development to develop the next generation of healthcare products and services, which will help patients and unlock the next phase of earnings growth.
I won't pretend to fully understand CSL's biotechnology aspects, but its long-term revenue and profit growth show that it has a track record of allocating funding to the right areas.
Its global business presence in locations like Australia, the United States, Europe, and Japan means it should have a large growth runway and a global addressable market.
Broker UBS does not expect CSL to make large acquisitions in the short term, so investors should focus on the upcoming R&D day in October and analyse where the strategic focus could be for the cash generated by the business.
UBS is forecasting that CSL's net profit could rise from US$2.9 billion in FY24 to US$5.5 billion in FY28. This would represent growth of around 90% in four years.
If profit grows that much, I think it could lead to CSL shares outperforming the market, assuming the price/earnings (P/E) ratio doesn't change too much. I think it could be tricky for the S&P/ASX 200 Index (ASX: XJO) to deliver an average return per annum of more than 10% per annum over the next four years – that's the approximate return it has managed over the ultra-long-term.
You can see why CSL shares attract investors with these factors going for it.
What I think Buffett would do with CSL shares
Warren Buffett loves growing businesses, but I also think he'd want to stay within his circle of competence. In other words, he only invests in businesses and industries he understands.
You can better evaluate a business and avoid bad companies if you stay within this parameter. As Warren Buffett said in 1999:
Different people understand different businesses. And the important thing is to know which ones you do understand and when you're operating within what I call your circle of competence.
This allows investors to reasonably judge the future economics of a business.
Due to the complex nature of biotechnology companies, I don't think Warren Buffett himself would invest in CSL shares. But he'd be impressed by what the company has achieved and its efforts for growth in the future.
