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Stock Strategist

Seeking Small-Cap Moats: Sun Hydraulics

Sun Hydraulics is--by just about any definition--a high-quality company that has a profitable niche focus, a likely economic moat, and a strong management team, says Morningstar’s Todd Wenning.

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When I came up with the idea for this monthly series, one company stood out in my mind as embodying all the characteristics of a high-quality small cap that possesses an economic moat. It's also a company that I've followed and owned for a number of years now. At the risk of playing favorites and "talking up my book," then, I wanted to highlight a few other small caps in this series before I discussed this one.

Before we jump into this month's small cap, however, I want to clarify what I mean by a "quality" company--a term that's often used in equity research but is rarely defined. Depending on who is making the case, quality can be limited to just meaning a good balance sheet or consistent free cash flow generation, but there's more to it than any single factor. 

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Todd Wenning does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.