When you're number one, life is good. So exemplifies the case of market leaders that retain strong comparative advantages over their competition. Virtual monopolies have the distinct advantage of dominating an industry sector, which allows for increased pricing control, strong supply chain management, and lasting sustainability. Such companies often have strong underlying fundamentals that stretch beyond their brand familiarity. For the elite few, companies have defined their niches inside industries with high barriers to entry and have created the ideal environment to move ever close to the idea of being "too important to fail."
For the investor looking for safety, companies that provide the practical appeal of being unable to be dislodged offer a sound choice of investment. Yet the investment does not come without its share of disadvantages. As is often the case, virtual monopolies tend to be older companies that have sat on their thrones for decades prior. Limited growth and higher operating expenses from increased salary compensations often play a significant role to slower capital appreciation.
Yet investors should remember the ultimate principle of investing on the capital markets. Stocks hold their worth on the premise of ownership participation in the earning capacity of the company. Most directly this sense of value comes in the form of dividends or the anticipation of a company's ability to one day distribute such dividends. Virtual monopolies have developed the ideal environment to grow their distributions or to consistently perform them, barring any extraordinary market conditions.
The following four companies offer a unique and diverse set of powerful entities in their own respective industries. These companies have created empires that are relied on by their end-users. All values are taken as of January 25, 2012.
| Company | Market Cap. | Fwd. P/E | Industry |
|---|---|---|---|
| Monsanto (MON) | $43.5 B | 19.88 | Farming Seed |
| Google (GOOG) | $184.6 B | 11.44 | Internet Search |
| Boeing (BA) | $56.4 B | 15.29 | Commercial Jets |
| Philip Morris Intl. (PM) | $133.4 B | 14.83 | Intl. Cigarettes |
A few thoughts for those looking to invest in these reigning companies:
- Monsanto's patents have given the company its ability to dictate over its end-use consumer base. With a control over the seed industry, Monsanto was attributed to retain a market share of 93% for soybeans and 80% for corn as of 2009 according to an article by the Washington Post.
- Google's market share for "search" rose to 65.38% in October 2011, yet continues to see increased competition from Microsoft's (MSFT) Bing, which retained 13.23% during the same time period. While the company continues to expand into other industries, many of which offer synergistic capabilities, the company's core market remains the power of search.
- The development of commercial jetliners holds a very high cost of entry in terms of capital, infrastructure, supply chain needs, and regulatory demands. As a result, Boeing is virtually in a league of its own, often only truly finding competition from large defense contractors such as the European Aeronautic Defence and Space Company (EADSY.PK), which operates a commercial manufacturing line through its company Airbus. Additional rivals in the space could come about in the future from Northrop Grumman (NOC), General Dynamics (GD), and Lockheed Martin (LMT). Yet to date, these companies have typically focused on their military production lines.
- Philip Morris grew so big that it decidedly split from its parent company in 2007 forming Philip Morris International. Philip Morris USA remains a part of Altria (MO), and focuses on the domestic market in the United States. Yet Philip Morris International is still the number one company in 13 markets (and the second largest company in another 9) out of the top 30 markets by size. Excluding the market in China, the company held a market share of 27.6% in 2010. Branding loyalties remains a key asset for the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
