July 5

3 Reasons why your investments should have moats

first_img Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Simply click below to discover how you can take advantage of this. Our 6 ‘Best Buys Now’ Shares Michael Taylor holds no position in any of the stocks mentioned. The Motley Fool UK owns shares of and has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Image source: Getty Images. Enter Your Email Address Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! An economic moat, as described by Warren Buffett, refers to the protection a company has against its competition. This is important, because without an economic moat competitors can just swoop in and copy a company’s methods to success. Here as three reasons why the companies you invest in should have moats. High margins attract competitionWhen a business has high margins and is therefore highly profitable, it’s only natural that others will look at the business with envious eyes and want a piece of the pie for themselves. You want your chosen company to invest to have a moat to protect it from those predators looking to eat into its market share. 5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Consider Apple, the world’s most valuable company. It has high margins, so how does it protect itself? The Apple ecosystem. Everything is geared towards making the customers’ lives easier, so that they do not want to switch to any competitors. Apple has a high retention rate – once people start using Apple products, they rarely wish to change to any other phone or laptop manufacturer.This is how the business has developed a huge fanbase, and an almost cult-like status.Low margins need defending tooNot all high margin businesses are highly profitable companies, and not all low margin businesses are highly unprofitable companies either. Look at Ryanair (LSE: RYA), the airline that’s so cheap the founder has claimed he would get rid of the airline seats if he could. He has a relentless focus on driving down prices, which is of course the company’s moat. It’s hard to damage Ryanair when most of its competition has higher operating costs per seat than Ryanair charges in revenue. Despite the low margins, Ryanair has been able to carve out a growing aviation empire by hammering down on its core competencies: achieving low cost through superior volumes and leveraging those volumes for attractive supplier agreements.The larger the volume of passengers and business it brings, the more attractive the supplier agreements become.No moat leaves your stock open to attackWhen a company doesn’t have a moat, then it is susceptible to being copied. This happened to UK window seller Safe Style (LSE:SFE) which had high margins and managed to grow across the UK. Unfortunately, there was no moat in fitting and selling windows and competitors soon appeared and drove the price right down, eroding those margins.The best companies on the stock market often have wide and discernible moats. These can be created through intellectual property or product ecosystem, or the nature of the business itself through volume. If your portfolio is full of stocks that have no real moats, then perhaps it’s time to have a rethink about your ownership in them.center_img See all posts by Michael Taylor I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Michael Taylor | Tuesday, 11th February, 2020 | More on: RYA SFE “This Stock Could Be Like Buying Amazon in 1997” 3 Reasons why your investments should have moats I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.last_img read more