On January 2, 2002, CSL hit $52. The internet boom might have been a thing of the past, but health and biotechnology stocks were all the rage and CSL, which develops, manufactures and markets human and veterinary pharmaceutical and diagnostic products derived from human plasma, was at the forefront of investor buying.

Just how much CSL was in market favour can be gauged from these numbers. At $52, and based on earnings to June 30, 2002, it was trading on a price-earnings multiple of 49 times. On this year's expected profit to June 30, 2003, of about $85 million, that multiple blows out to 67 times. The market was clearly getting ahead of itself.

The signals were just as clear on the dividend front. Last year's payout to investors of 34 cents was yielding a miserable0.6 per cent. Even today, based on a $15 share price and an expected repeat payout of 34 cents, the yield is still an unimpressive2.3 per cent. There is much better value in the market. Just as importantly, it highlights that CSL is in the growth-stock camp.

CSL's current share price of about $15 - it reached a three-and-half-year low of $13.46 on February 27 - represents value. While the company has its problems, not the least being a 30 per cent drop in the interim net profit for the half-year to December 31, 2002, it still represents long-term value.

A 71 per cent fall in value over slightly more than a year might prove a good buying opportunity. That said, any rebound in the stock will not happen overnight. Indeed, current levels might not be the low.

Analysts can find no shortage of problems undermining the stock, including the price of its main blood plasma product (Immune Globulin Intravenous), the rising Australian dollar, the fact that it was beaten to the punch to get a new trauma bandage to market, poor sales in Europe and the breakdown of merger talks between rivals Beyer and Aventis (it would have taken the pressure off the plasma market, where there is an oversupply).

These problems cannot be ignored. But in the current market mood each problem assumes a dimension that is not warranted. Just as the market lapped up every piece of good news on the stock's ascent to $52, today it is seizing on every problem to find an excuse to sell.

There is no better example of this bearish market sentiment than the recent announcement by managing director Dr Brian McNamee that CSL was looking at acquiring the blood fractionation business of Aventis.

With the potential lift in sales of about $2 billion, it takes little imagination to realise what this news would have done to the share price in 2001.

However, sentiment in 2003 is vastly different, with the share price falling 77 cents when CSL made the announcement on February 18. To this column, such selling is symptomatic of the market - not CSL's long-term prospects. At these levels, this growth stock is worth accumulating. Buy.

CSL: $14.60
Sector: Health and biotechnology
Business: Develops, manufactures and markets human and veterinary pharmaceutical and diagnostic products derived from human plasma.
Market cap: $2331 million
Final dividend (June 30, 02): 34 cents
Yield: 2.3 per cent
Price-to-earnings multiple (June 30, 02): 13.8 times
At March 14

Bulls

AGL (AGL, $10.86) BUY
David Pender, a private client research analyst with JBWere, says AGL reported a solid interim-net profit, up 30 per cent on the same period last year, due in part to the acquisition of Pulse. "The company remains keen on increasing its ownership of physical generation assets through acquisition and construction," he says, adding that it is a "sensible strategy". Coupled with solid dividend yield, Mr Pender says, AGL is a solid investment for thelong-term investor.

Wesfarmers (WES, $23.30) OUTPERFORM
Peter Cotter, a financial consultant with Smith Barney, says the recent weakness in Wesfarmers creates a buying opportunity. He says there are four factors supporting the stock: its "2003 fully franked yield of 5 per cent and a commitment to continue to pay out 100 per cent of reported earningsper share, a 5 per cent buyback of its stock, an attractive earnings growth profile and solid cash flow". He rates the company a low-risk investment.
See disclosures about this company at www.smithbarney.com.au

BEARS
PRIME TELEVISION (PRT, $2.05) SELL
Paul Pekish, a senior private client adviser with Paterson Ord Minnett, says Prime is expected to report its interim result this month. "We expect earnings before interest and tax to be down 11 per cent to $14.9 million, with reported net income down 23 per cent to $6.5 million due to market share losses, the cost of the Commonwealth Games and the negative impact of the appreciating New Zealand dollar on Prime NZ losses," he says.

Austereo Group (AEO, $1.22) SELL
David Pender, a private client research analyst with JBWere, says Austereo is trading at a 20 per cent premium to the small cap market with a declining earnings per share profile over the next three years. "While the recent (profit) result showed that its share of the advertising market fell only marginally, despite a more significant fall in its ratings, the uncertainty in relation to where its revenue share will ultimately settle is negative for the stock," he says.

Southern Cross Broadcasting (SBC, $7.98) UNDERPERFORM
Peter Cotter, a financial consultant with Smith Barney, says 2004 remains the main challenge for the company. "It must negotiate new affiliation agreements with the very successful Ten Network," he says, adding that Smith Barney believes Southern Cross will experience significant fee rises, dramatically limiting the growth from television for at least the next two years. He rates the company a low-risk investment.
See disclosures about this company at www.smithbarney.com.au

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