Jack Brumby | Mar 18, 2020 10:55
Most investors would agree that the best quality companies in the stock market often make the best investments as well. I'm talking about some of the most respected names... the ones that seem to be able to make consistently stunning profits over the long term.
What makes these stocks so appealing is their ability to resist competitive threats and generate breathtaking profits. They compound investment returns at consistently above-average rates over the long term.
These stocks are different because they've got what billionaire investor Warren Buffett, calls economic moats. Like medieval castles, their profits are fortified by impregnable business models.
In this article I'm going to tell you what makes these stocks so special - and I'm going to use Sage (LON:SGE) as an example. Sage is a balanced, large cap in the Software industry.
h2 How can you tell whether a company has a moat?/h2Moats are desirable because they often guarantee a sustainable competitive advantage. But there are several ways that companies can get them. For example, they might have:
When it comes to searching for companies with moats, some of the biggest clues actually lie in their financial statements. By looking at a small number of important ratios you can get an idea about the competitive strength and profit power in a business.
Here's what they are and why they are important - and how Sage stacks up against them:
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.
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