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J. A. Saglimbeni
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I am a Blue-Collar worker that has been investing for over twenty years. I will invest across all types of investments: Tech, growth, dividends, bonds, & options. I believe that people can invest on their own and in due time can build a portfolio of stocks that will easily surpass many... More
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  • How I Evaluate Stocks: Brands And Moats 2 comments
    Jul 17, 2012 9:45 PM | about stocks: AAPL, MSFT, CHD, PEP, SBUX, MA

    So you found a great stock with an unbelievable chart and impressive earnings and revenue growth, but is this enough to sustain long-term returns in the stock? I think the next step that we all take as investors is to recognize if the company behind this great stock has a great brand and moat.

    According to Wikipedia, a brand is a "name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers." Good example of strong brands would be Pepsi-Cola which belongs to PepsiCo (NYSE:PEP) or Arm and Hammer baking soda which belongs to Church and Dwight (NYSE:CHD). These two brands that I have just mentioned happen to be strong brand names, but do their companies have a moat because of their brands?

    We begin by defining what exactly a "Moat", according to Investopedia, an "Economic Moat" is a "competitive advantage that one company has over other companies in the same industry." Good examples of strong moats, in my opinion a harder to come by these days. Gone are the days when true moats such as AT&T (before the break up) are gone, but there are many companies today which are close to having some serious barriers to entry like Microsoft (NASDAQ:MSFT) through its software that includes Office and Windows and then you also have Apple (NASDAQ:AAPL) through its closed network using hardware like iPhones and software like iTunes. These are great companies with strong brands and moats, but it does not necessarily equal great returns, this is why investors must learn to first find great charts, earnings and revenue growth first and then they can top it off by confirming whether or not the company has a strong brand or moat.

    Some of the stocks that I am long that have strong brands and moats are Apple (AAPL), MasterCard (NYSE:MA), PepsiCo (PEP), and Starbucks (NASDAQ:SBUX). I have attached a chart courtesy of Yahoo! Finance comparing these four stocks to the S&P 500. All four companies have appreciated better than S&P 500 the last five years and this is without dividends reinvested.

    (click to enlarge)

    Disclosure: I am long AAPL, CHD, PEP, SBUX, MA.

    Stocks: AAPL, MSFT, CHD, PEP, SBUX, MA
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  • Rogerj1
    , contributor
    Comments (9) | Send Message
     
    Great idea, but Morningstar has been rating companies by their economic moat for many years. Might want to attribute that or sue em for stealing your idea.
    23 Jul 2012, 04:58 PM Reply Like
  • J. A. Saglimbeni
    , contributor
    Comments (831) | Send Message
     
    Author’s reply » Yes, it may be true...they do have MOAT, but I am focusing solely on owing a basket of no more than15 individual stocks with strong brands, moats, and growing earnings...Roger, if you look at what their top holdings are, they are just like the rest of the mutual fund/ETF families...I mean do you really consider GE to have a moat or ORACLE to have a moat (maybe they have a good brand)....but there are very few that have moats, brands, and earnings...MA, AAPL, PEP, and SBUX are not even in their top holdings...sorry, but I am not buying it..I will stick to the way I look at Brands and Moats...if Morningstar needs my help, I have no problem helping...I won't even charge them a fee...lol.
    Thanks for the reply Roger...

     

    J. A.
    23 Jul 2012, 11:21 PM Reply Like
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