What medieval defensive technology could help your modern stock portfolio? Have you considered adding moats to your portfolio? Just as castles had moats wide enough to keep invaders out, companies can also have “moats” that protect their businesses from competitors. If wide enough, these moats can make the company’s stock more valuable. Here, I look at 5 such stocks.
Nestle (OTCPK:NSRGY): The ADR Shares are trading around $55.00, at the low end of their 52-week trading range of $52.70 to $65.53. At the current market price, the company is capitalized at $179.44 billion. Earnings per share for the last year were $2.78, and it paid a dividend of $1.95, yielding 3.55%. With products as ubiquitous as Gerber baby food and the Kit-Kat bar, the Switzerland based Nestle has diversified products and global customer base. Its price to earnings ration of 19.78 is higher than its direct competitor Danone (OTCQX:DANOY) which trades at a multiple of 17.34. However, Nestle’s market cap is almost 5x Danone’s and reflects the size and reach of Nestle and its brands. With its massive size, global reach and extensive product offerings, Nestle offers a substantial moat to its shareholders. Buy as a long-term, defensive holding.
Novartis AG (NVS): Shares are trading around $56, with a 52-week trading range of $51.6 to $64.82. At the current market price, the company is capitalized at $134.34 billion. Earnings per share for the last year were $4.26, and it paid a dividend of $2.00, yielding 3.57%. Recently the company reported that it’s new multiple sclerosis drug, Gilenya, met its main goal in a late-stage clinical trial. Gilenya has been approved in both the United States and Europe. Novartis AG’s quarterly sales grew 18% over last year which compares favorably with competitor Pfizer Inc’s (PFE) 7% sales increase over the same period. Novartis AG’s management believes that the company’s combination of pharmaceutical products, over the counter drugs and eye care provides the right product mix for sustained growth. Buy for growth.
Exxon Mobil Corporation (XOM): Shares are trading at $79 at the time of writing, with a 52-week trading range of $67.03 to $88.23. Earnings per share for the last year were $6.22, and it paid a dividend of $1.88, yielding 2.30%. With a market capitalization of $384.5 billion, Exxon Mobil is the largest domestic integrated oil and gas company. At the end of the third quarter, the company reported 84 billion oil-equivalent barrels which they believe to be the largest reserves among all international oil companies. The company has also made investments in unconventional resources such as oil sands and shale deposits. Exxon Mobil’s vastness and investments in conventional and unconventional oil and natural gas provide a solid defense against competitors. Buy for growth.
Apache Corporation (APA): Shares are trading around $88 at the time of writing, with a 52-week trading range of $73.04 to $134.13. At the current market price, the company is capitalized at $33.8 billion. Its earnings per share during the last year were $8.74, and it paid a dividend of $.60 (a yield of around .68%). Apache reported approximately 3 billion oil-equivalent barrels as opposed to Exxon Mobil’s 84 billion. Apache is more reliant on more expensive exploration activities than a competitor with the size and scope of Exxon Mobil. With such a disadvantage in proven reserves, Apache does not appear to have built a sufficient moat. XOM provides a much better moat.
ArcelorMittal SA (MT): Shares are trading at $17 with a 52-week trading range of $14.77 to $38.88. At the current market price, the company is capitalized at $26.5 billion. The company earned $1.82 per share last year and paid a dividend of $0.75 (a yield of 4.51%). The company reported 2010 steel production of 90.6 million tons which it approximated as 8% of world steel production. A review of Yahoo Finance’s Steel & Iron Industry shows over 200 globally traded steel and iron companies. The company does not distinguish itself in size, product mix or financial results when compared to a competitor such as POSCO (PKX). The steel and iron industry may not provide the opportunity for building a sufficient moat. While the yield seems high, the industry is highly competitive. Avoid MT.