When a Wide Moat Is Not Enough

These stocks have sustainable competitive advantages but are looking very pricey

Adam Zoll 8 March, 2013 | 6:00AM
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Knowing that a stock you own has a wide economic moat can provide great peace of mind. A wide moat, after all, means the company has sustainable competitive advantages that can give it a leg up over its competitors. Wide-moat stocks also tend to be less volatile than their narrow- and no-moat peers, according to Warren Miller, Morningstar's director of quantitative research.

Investors who buy stocks based on moat alone run the risk of over-paying for quality companies

Yet investors who buy stocks based on moat alone run the risk of over-paying for quality companies. A wide-moat company with a Morningstar Rating of 1 star is no bargain, since that 1-star rating implies the company is expensive and is trading well above Morningstar's fair value estimate.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Anheuser-Busch InBev SA/NV49.36 EUR0.05Rating
Facebook Inc A312.22 USD-1.14Rating

About Author

Adam Zoll  is an assistant site editor with Morningstar.com, the sister site of Morningstar.co.uk.