At Morningstar, we're fans of companies that have carved out economic moats thanks to the unassailable competitive advantages they possess. These competitive advantages can be derived from various sources such as intangible assets, switching costs, network effect, cost advantage, and efficient scale. We expect narrow-moat companies to generate excess returns on invested capital for at least the next decade; for wide-moat companies, that stretches to least 20 years.
But that doesn't mean that no-moat stocks aren't worth investing in. Some companies--such as automakers--are in industries that aren't moat-friendly. Others, meanwhile, are in the process of trying to build moats.
To view this article, become a Morningstar Basic member.
Susan Dziubinski does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.