Articles filed under "moats"
Even after tech’s roller coaster ride over the past month, no one is going to mistake the likes of Facebook (FB) or Twitter (TWTR) for growth stocks that a value investor could love. But eBay (EBAY) increasingly fills that intriguing bill. Revenue has nearly doubled over the past five years. Granted that’s about one-third the pace of revenue-crazed Amazon (AMZN), but then again, eBay actually manages to churn out earnings growth along with its none too shabby revenue growth:
And eBay has been showing up in some interesting value spots. Morningstar says that eBay currently sells at near a 15% discount to Morningstar’s (MORN) estimate of fair value. Add in the fact that eBay is also one of the rare stocks covered by Morningstar to earn a coveted wide moat rating, and you’ve got yourself an interesting stock for these times: a global firm (52% of 2013 revenue came from international markets) with an enduring competitive advantage that happens to sell at a decent discount in a market that doesn’t.
While the large caps by definition get the bulk of investor attention, their smaller siblings showed them up in the first quarter. The 5% total return for the WisdomTree MidCap Dividend ETF (DON) was two percentage points ahead of the SPDR S&P 500’s performance, which also lagged the rise in two other midcap portfolios:
The WisdomTree Dividend ETF offers an interesting way to invest in midcap stocks. Given that most midcaps are not (yet) behemoths with defensible wide moats you have to expect they are going to be more volatile. Nothing wrong with that. But focusing on midcap stocks that are mature and flush enough to pay a dividend gives you a dollop of risk-dampening. And since the 2009 market bottom that hasn’t translated into having to concede upside potential:
Five years into a bull market, it seems timely to ripe to consider ways to add some tactical defense within your stock portfolio. The Market Vectors Wide Moat Index ETF (MOAT), which owns the likes of Berkshire Hathaway (BRK.B), CH Robinson Worldwide (CHRW), General Electric (GE) and BlackRock (BLK) has an interesting value proposition.,/p>
Though the ETF is just coming up on its two-year anniversary, the index it tracks, the Morningstar (MORN) Wide Moat Focus Index, has been around for a decade and impressively outperformed the S&P 500. Here’s the ETF’s performance since its April 2012 launch compared to the SPDR S&P 500 ETF (SPY):
Spinoffs are a successful investment concept these days, from Carl Icahn pleading with eBay (EBAY) to separate itself from its PayPal unit to Abbott Labs (ABT) distancing itself from its once-dominant product, the rheumatoid arthritis medicine Humira, by spinning off its pharmaceutical business as AbbVie (ABBV).
But few amicable divorces have been as fabulously rewarding for investors as the spinoff of TripAdvisor (TRIP), the travel content site, from its one-time parent Expedia (EXPE), the online ravel agency.
In some ways, TripAdvisor resembles Yelp (YELP), with consumers logging some 125 million reviews of hotels, vacation rentals and other travel experiences on the site. Users make travel decisions based on the site’s content and, when they click through to actual travel agencies like Expedia and Priceline (PCLN), those companies pay TripAdvisor a fee. The travel agencies also buy banner ads on TripAdvisor. The clicks and banner ads – along with some subscription services – added up to total 2013 revenue of $944.7 million. And unlike Yelp, TripAdvisor is solidly profitable, with net income last year of $205.4 million.
The latest YCharts 1% Focus Report covering semiconductor stalwart Intel Corp. (INTC) is available for download.
In response to reader demand, this is our first report to feature an intrinsic value range for the focus company as its capstone.
The calculations that go into the valuation range are objective, transparent, and data driven, and build on the analysis of the valuation drivers detailed in the rest of the report.
Here is an excerpt...
Warren Buffett speaks frequently of businesses protected by a competitive moat, and few if any Berkshire Hathaway (BRK.B) units can out-do the moat enjoyed by Burlington Northern Santa Fe, the railroad Buffett bought 77.4% of (Berkshire already owned the rest) for $34 billion in 2009.
Assembling the rights-of-way to lay down tens of thousands of miles of track seems next-to-impossible at this late date, giving the existing railroads enormously lucrative franchises. You can’t buy stock directly in BNSF, as Berkshire’s rail unit is known, but, as we’ve noted in the past, Buffett didn’t buy all the railroads.
The one that most mirrors BNSF is of course Union Pacific (UNP), its roughly 32,000-thousand-mile network of track paralleling the BNSF lines covering the Western two-thirds of the U.S. And as happy as Buffett sounds about his railroad, Union Pacific holders have easily as much to cheer about.
That chart shows performance since November 3, 2009, the day the acquisition of BNSF was announced.
No one’s words – save, perhaps, Vladimir Putin’s – were parsed more closely over the weekend than Warren Buffett’s, as he issued his annual letter to Berkshire Hathaway (BRK.B) shareholders.
There were the usual shout-outs to Berkshire managers for doing a great job; a tutorial on how to think about investing that featured Buffett’s Nebraska farm and a commercial building near New York University; a mild mea culpa on some crummy bonds he bought without first asking Berkshire Vice Chairman Charlie Munger’s opinion; and praise for his equity managers, Todd Combs and Ted Weschler, each now running a $7 billion-plus portfolio, for beating the S&P 500 in 2013.
Oh, and this: Buffett gave such prominence to Berkshire’s investment in Bank of America (BAC) that it wouldn’t be surprising to see it become a permanent holding, and a big one. As you’ll recall, when BofA was really in the dumps in August 2011, Buffett engineered a deal to buy $5 billion in preferred shares. It was not unlike similar deals he struck earlier in the financial panic with Goldman Sachs (GS) and General Electric (GE), lending money at a high rate of interest but also lending his name at a time when the companies needed to calm markets.
With BofA, as with the others, Buffett drove a hard bargain. The BofA preferred, paying 6% annually, included warrants to buy 700 million BofA common shares at $7.14 apiece. So, in addition to the $300 million a year income Berkshire gets, the warrants are currently in the money by about $9.39 a share, or some $6.6 billion.
Investing in stocks deemed to have a deep competitive edge -- dubbed a wide moat -- seems to have its investing charms. As covered recently at YCharts the index that is the underpinning for the Market Vectors Wide Moat Index ETF (MOAT) has beat the overall market over the long-term.
The index is reconstituted quarterly to own the 20 stocks that Morningstar (MORN) has deemed to have wide moats and that trade at the most compelling valuations according to Morningstar’s proprietary fair value analysis. (Full disclosure: Morningstar is an investor in YCharts.)
Plugging this quarter’s portfolio into yet another value rating system, YCharts’ own, using the YCharts Watchlist function allows for some interesting slicing and dicing to get a more in-depth take on the relative value of each holding. YCharts’ proprietary Value Score assigns each stock a score between 1 and 10. During the highly volatile 2000-2010 stretch YCharts found that companies with the highest value score of 10 greatly outperformed those with the lowest value scores.
(You can learn more about YCharts Value Score here.)
Here’s what two years of strong market gains does to valuations: In January 2012 Morningstar’s index of the 20 most compelling stocks deemed to have wide competitive moats included 17 stocks trading at discounts of at least 25% to Morningstar’s estimate of fair value. At the latest quarterly reconstitution of the index just three of the 20 stocks in the index -- Weight Watchers International (WTW), Exelon (EXC), and Western Union (WU) -- trade at a discount to fair value of at least 25%.
(Full disclosure: Morningstar (MORN) is an investor in YCharts.)
That said, wide moat stocks aren’t any more expensive than the overall market. Morningstar pegs the price-to-fair value for all stocks it covers at 104% today, with the wide moaters on average coming in at 102%. While none of that screams bargain, at this juncture in the market the fact that you don’t have to pay up for companies deemed to have staying power is intriguing. These aren’t the sort of stocks that lead in uber bullish markets. The Market Vectors Wide Moat ETF (MOAT) ETF that tracks the index has slightly lagged the market over the past year:
If you’re a taxpayer (aren’t we all?) and felt a chilling wind blow through the pocket you keep your money clip in over the weekend, it might have been due to a decision by the federal government’s Centers for Medicare and Medicaid to go easy on the dialysis industry, enacting far smaller reimbursement cuts than previously expected.
The industry behemoths DaVita (DVA) and Fresenius (FMS) promptly rallied on the news. Their business, you see, is administering dialysis and collecting federal payments. In the U.S., that’s really about all there is to it, and it’s a booming industry due to our poor eating habits.
Stay UpdatedSubscribe via RSS to moats
- pharma stocks
- tech stocks
- stocks that look cheap
- stocks that look pricey
- money managers
- retail stocks
- value investing
- dividend growth
- growth stocks
- energy stocks
- earnings season
- stock buybacks
- income investing
- bank stocks
- warren buffett
- dividend yield
- short sellers
- stock screener
- entertainment stocks
- dividend yields
- federal reserve
- executive compensation
- CEO & Publisher Shawn Carpenter
- Editor Jeff Bailey
- Contributing Editors Dee Gill, Carla Fried, Emily Lambert, Bill Barnhart, Kathy Kristof, Stephane Fitch, Larry Barrett, Bill Bulkeley, Mark Henricks, Suzanne McGee, Ed Silverman, David J. Phillips, Katherine Reynolds Lewis, Theo Francis, Condrad de Aenlle, Amy Merrick