5 Market Dominating Stocks

A company with a wide 'moat', or competitive advantage over its peers, translates to a stable share price and sustainable growth and income for shareholders

Emma Wall 1 May, 2014 | 4:08PM
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Economic moats — a term Morningstar borrowed from Warren Buffett — are what keep a companies’ competitors at bay. An economic moat is a sustainable competitive advantage that allows a company to earn excess returns on capital for a long period of time. The moat may be established because of a cost advantage, patented products or efficiencies of scale. Companies without a moat are more vulnerable to losing market share, customers and eventually, profits.

A company’s moat is described as narrow or wide, depending on the strength of its competitive advantage. Those companies with a wide moat are less vulnerable to stock market fluctuations, and dominate their chosen sector. Shareholders of these companies can expect a stable share price and where dividends are paid, a steady source of income. Wide, stable moat companies tend to be defensive in nature – these stocks will not double overnight – but they can form the reliable core of a portfolio.

Using Morningstar Select we have identified five companies with a stable competitive advantage over their peers, and which are currently trading at or below their fair share price value.

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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
British American Tobacco PLC2,599.50 GBX0.21Rating
Diageo PLC3,613.50 GBX-0.43Rating
GlaxoSmithKline PLC1,441.80 GBX0.53Rating
Unilever PLC3,893.00 GBX-0.64Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar