Companies with competitive advantages tend to be high performers. They may be large and enjoy economies of scale, such as Wal-Mart (WMT), and can charge low prices while remaining profitable. Or, like pharmaceutical companies, they may have patents that protect their products and allow them to charge high prices.
Morningstar rates many companies based on what it calls an "economic moat," which "refers to how likely a company is to keep competitors at bay for an extended period." Among the variables considered for an economic moat are patents, brands, cost advantages, efficiency of scale, and switching costs, among others.
Recently, I looked at several companies Morningstar rates as enjoying the greatest economic moat advantage, which it calls a "wide moat." I found three that I, too, agree have competitive advantages. In addition, these three companies also earn a top recommendation from one of my guru strategies, which are automated strategies I created to mirror how some of history's greatest investors choose stocks to buy.
Consumer products giant Unilever (UN) is one of these companies. It has economies of scale, while owning lots of shelf space at retailers. With such brands as Dove, Hellmann's, Lipton, and Ben & Jerry's, this company enjoys the advantages that come from both scope and scale. My guru strategy based on the writings of James P. O'Shaughnessy is a strong supporter of Unilever because of the company's size ($132 billion market cap), positive cash flow per share, nearly 3 billion shares outstanding and huge sales ($54.5 billion). In addition, the stock pays a 2.99% dividend.
Accenture (ACN) is a giant consulting and IT services company with operations in more than 120 countries and more than 350,000 employees. Such factors as the cost to customers of switching from Accenture and its size give ACN a competitive advantage. My Warren Buffett-based strategy likes Accenture. It considers the company to have a competitive size advantage and dominant market position. Also in the company's favor -- earnings per share that have increased in eight of the past 10 years, almost no debt compared to earnings, a 49.0% return on equity over the past decade, and a projected 17.9% rate of return over the next 10 years for investors.
GlaxoSmithKline (GSK) is one of the world's major health care companies, with operations in more than 150 countries. Patents, size and financial resources all help give this company a competitive advantage. Like Unilever, GSK is a favorite of my O'Shaughnessy-based strategy because of its market cap ($101 billion), positive cash flow per share, large number of outstanding shares, and sizable sales ($35.6 billion). In addition, the stock has a 5.96% dividend yield.
Competitive advantages, strong financial performances, dominant market positions and well-priced stocks all contribute to making these companies worthy of buying today.
