Can you name a stock with a reasonable business 'moat' ?

Discuss your favourite picks, broker, and trading or investment style.

Can you name a stock with a reasonable business 'moat' ?

Postby bindexit » 13 Nov 2008 14:30

I invested in Teranet Income Fund because I perceived the business model to have a reasonable 'moat'. There is an offer on the table and not sure if my units will be taken out yet.

In seeking a replacement for my funds, I wanted to invest another business that has a viable moat. I'm leaning towards CP rail as I think the Canadian rails (CP, CNR) have better long term moat qualities than our banks, insurance, or telecommunication companies. Power generation utilities are moats as well but not sure if current valuations are good to invest right now in a low interest rate environment.

Investing right now is difficult due to recessionary conditions. I prefer to place my money for the long term in businesses that at least have a viable moat.


I was wondering if others posters would care to name Canadian companies with viable moats and provide rationale. I'm always intersted in these investing ideas.
bindexit
Silver Ring
Silver Ring
 
Posts: 455
Joined: 24 Feb 2007 14:43

Postby investor99 » 13 Nov 2008 14:42

Absolutely CP, CNR, TRP, ENB, etc.

I would argue Tim Hortons (THI) has a significant moat.

Moats are hard to come by in Canada. In the U.S. my favourite moats include UPS, Walgreen (WAG), and ADP.
The best time to plant an Oak tree was twenty five years ago. The second best time is now.
--
http://themoneygardener.com/
User avatar
investor99
Gold Ring
Gold Ring
 
Posts: 1003
Joined: 22 Nov 2006 21:53
Location: Brantford, Ontario

Postby iluvnascar » 13 Nov 2008 17:08

Check out Morneau Sobeco (MSI.UN)

I think it's the next Teranet........and will be taken out by a large pension fund sooner rather than later.
iluvnascar
Gold Ring
Gold Ring
 
Posts: 1050
Joined: 25 Apr 2005 08:21
Location: London, Ontario

Postby rhenderson » 13 Nov 2008 17:56

iluvnascar wrote:Check out Morneau Sobeco (MSI.UN)

I think it's the next Teranet........and will be taken out by a large pension fund sooner rather than later.


Sooner than later like CMT :?:
rhenderson
Silver Ring
Silver Ring
 
Posts: 316
Joined: 22 Jan 2007 14:38

Postby bailey » 13 Nov 2008 18:04

Here's an article why Kevin O'Leary likes Teranet.
http://www.theglobeandmail.com/partners ... ranet.html
User avatar
bailey
Silver Ring
Silver Ring
 
Posts: 343
Joined: 24 Feb 2005 10:18
Location: Ontario

Postby mpav » 13 Nov 2008 20:20

In Canada, it is really the rails and utilties - TRP, ENB, CU, FTS, CNR, CP. You could argue that the banks, insurance, and telcos have moats as well (maybe in cable) but potential for foriegn competition will test that.

In the US, you will also have:

- UPS/Fedex as they have the logistics that noone can compete with, and start ups are virutally impossible (unless they are spinoffs from governments)

- ADP/Microsoft - both have such huge hooks into corporates, never get them out once they are in (and they are in everywhere)
mpav
Silver Ring
Silver Ring
 
Posts: 533
Joined: 12 Jul 2007 13:30
Location: Toronto/Croatia

Postby mpav » 13 Nov 2008 20:20

I should add, no retail operation truly has a moat....to much competition.
mpav
Silver Ring
Silver Ring
 
Posts: 533
Joined: 12 Jul 2007 13:30
Location: Toronto/Croatia

Postby scomac » 13 Nov 2008 20:35

mpav wrote:I should add, no retail operation truly has a moat....to much competition.


I would agrue that Wal-Mart has an effective moat. They have competitive advantages in sourcing and purchasing that no one can match.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
User avatar
scomac
Gold Ring
Gold Ring
 
Posts: 5294
Joined: 19 Feb 2005 10:47
Location: The Greenbelt

Postby investor99 » 13 Nov 2008 21:42

Retailers certainly can have moats. Why?

Very well known ingrained brands create moats. For example Tim Hortons is such a fabulous brand, has the best locations, and has such a large portion of market demand that it absolutely deters other companies from having the desire to enter the industry. Who wants to start up a coffee, lunch and baked goods chain in Canada?

Wal-Mart has created a moat through excellence in supply chain mgmt. and pushing prices to the lower limit.

It is harder to creat a moat as a retailer or maker of retail products but it is doable.
The best time to plant an Oak tree was twenty five years ago. The second best time is now.
--
http://themoneygardener.com/
User avatar
investor99
Gold Ring
Gold Ring
 
Posts: 1003
Joined: 22 Nov 2006 21:53
Location: Brantford, Ontario

Postby marty123 » 13 Nov 2008 22:00

bailey wrote:Here's an article why Kevin O'Leary likes Teranet.
http://www.theglobeandmail.com/partners ... ranet.html


Sounds compelling, but he said nothing about what will happen when real estate market sales decrease. It's a business that repays their huge initial capital investment by collecting a fee everytime someone sells a house. Without having read the financial statements, I wonder if it's still cashflow positive if sales are down 20, 30 or 40%, and interest costs are either stable or increasing.
marty123
Gold Ring
Gold Ring
 
Posts: 2950
Joined: 23 Feb 2007 14:36
Location: Ontario

Postby augustabound » 14 Nov 2008 06:42

mpav wrote:I should add, no retail operation truly has a moat....to much competition.


Home Depot and Lowes. No other home centre retailer can match their pricing power, locations, network.
User avatar
augustabound
Gold Ring
Gold Ring
 
Posts: 2530
Joined: 17 Mar 2007 09:56
Location: GTA

Postby mpav » 14 Nov 2008 09:24

investor99 wrote:Retailers certainly can have moats. Why?

Very well known ingrained brands create moats. For example Tim Hortons is such a fabulous brand, has the best locations, and has such a large portion of market demand that it absolutely deters other companies from having the desire to enter the industry. Who wants to start up a coffee, lunch and baked goods chain in Canada?

Wal-Mart has created a moat through excellence in supply chain mgmt. and pushing prices to the lower limit.

It is harder to creat a moat as a retailer or maker of retail products but it is doable.


I think I see a difference in the the definition of moat, so just being successful is not a moat to me. In the case of Tim Horton's, they have not done their expansion in the US well, a new entrant could throw them a curve (Dunkin Donuts), so if they have a moat it is really just in Ontario. I just don't see that as moat in my defintion.

Just like I would argue Shoppers, Loblaws etc., all don't have moats as buyers have easy choice to switch.

In the case of enbridge, or TRP you may hate them, but you can't switch...you have no options, and no competitor will have easy access to get to your clients. Similar with CNR, as if you have to ship goods to a certain location, it is either truck or rail, and the two have very different attributes.
mpav
Silver Ring
Silver Ring
 
Posts: 533
Joined: 12 Jul 2007 13:30
Location: Toronto/Croatia

Postby investor99 » 14 Nov 2008 09:29

mpav, do you believe the Coca Cola (KO) has a moat?
The best time to plant an Oak tree was twenty five years ago. The second best time is now.
--
http://themoneygardener.com/
User avatar
investor99
Gold Ring
Gold Ring
 
Posts: 1003
Joined: 22 Nov 2006 21:53
Location: Brantford, Ontario

Postby brad911 » 14 Nov 2008 11:07

investor99 wrote:...do you believe the Coca Cola (KO) has a moat?


Absolutely! How else could a company get away with nearly 50% higher margins than their competition for products of very similar characteristics?
Triage Investing Blog - A Source for Value & Dividend Investing and Business Fundamentals
User avatar
brad911
Silver Ring
Silver Ring
 
Posts: 876
Joined: 29 Jan 2007 17:45
Location: London ON

Postby mpav » 14 Nov 2008 14:17

investor99 wrote:mpav, do you believe the Coca Cola (KO) has a moat?


I actually do not agree that Coke has a moat. But in truth our definitions of moat are likely very different.

My logic for CNR or TRP is that to compete with them you have to build an infrastructure that is virtually impossible. The reason we have rails, is the governement/shareholders sank tonnes of money at a loss to build, no one could do that now. So in the above examples, we would have to have a complete shift to replace them (stop using natural gas, new paradigm in how things are shipped).

In the case of Coke, I started using the discount brand, when I go to a fast food restaurant and I the only sell pepsi, I don't care. So I think it is a really amazing business, burned into our psyche, is addictive, but it is under intense competition....they get it from all sides, and could see margins eroded.

But my point around moat is how much competition you have, not how well you perform against it.
mpav
Silver Ring
Silver Ring
 
Posts: 533
Joined: 12 Jul 2007 13:30
Location: Toronto/Croatia

Postby BRIAN5000 » 14 Nov 2008 14:31

My logic for CNR or TRP is that to compete with them you have to build an infrastructure that is virtually impossible. The reason we have rails, is the governement/shareholders sank tonnes of money at a loss to build, no one could do that now.


If government, you/I, paid for installing some/most of this infrastructure. I say they should open this up to competition somehow. Just like the phone industry!! It would cost to much to build new railway tracks across the country so new competitors get to use existing tracks. LOL
BRIAN5000
Gold Ring
Gold Ring
 
Posts: 4634
Joined: 08 Jun 2007 23:27

Postby augustabound » 14 Nov 2008 14:53

mpav wrote:
investor99 wrote:mpav, do you believe the Coca Cola (KO) has a moat?


I actually do not agree that Coke has a moat. But in truth our definitions of moat are likely very different.

My logic for CNR or TRP is that to compete with them you have to build an infrastructure that is virtually impossible.


I understand some may have different ideas of what moats are, can a new entrant build the network that Coke has? Probably not.

As for the cheaper brand of pop, I can't stand the stuff. I really have no preference for Coke or Pepsi when I'm out,. Most people while in a variety store of elsewhere will pay the extra for Coke rather than the cheaper alternative. That's part of their moat, IMHO.
User avatar
augustabound
Gold Ring
Gold Ring
 
Posts: 2530
Joined: 17 Mar 2007 09:56
Location: GTA

Postby brad911 » 14 Nov 2008 15:06

lol....who do you think makes those "cheaper" no-name drinks? :wink:

Just because it doesn't have "Coca-Cola" written on the can doesn't mean KO isn't profiting from individuals buying that product. I think many people would be surprised at the amount of generic revenues that many manufacturers receive from generic brands.

Even if they're not manufacturing the generic brands themselves those alternate companies are using KO's supply chain and distribution system to get those products to market. No one will do that for free - its for a fee
Triage Investing Blog - A Source for Value & Dividend Investing and Business Fundamentals
User avatar
brad911
Silver Ring
Silver Ring
 
Posts: 876
Joined: 29 Jan 2007 17:45
Location: London ON

Postby investor99 » 14 Nov 2008 15:11

In a lot of cases in Canada though isn't it COTT
The best time to plant an Oak tree was twenty five years ago. The second best time is now.
--
http://themoneygardener.com/
User avatar
investor99
Gold Ring
Gold Ring
 
Posts: 1003
Joined: 22 Nov 2006 21:53
Location: Brantford, Ontario

Postby scomac » 14 Nov 2008 15:14

investor99 wrote:In a lot of cases in Canada though isn't it COTT


That's a great example; look at Cott then look at Coke. Now tell me with a straight face that Coke doesn't have a moat!
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
User avatar
scomac
Gold Ring
Gold Ring
 
Posts: 5294
Joined: 19 Feb 2005 10:47
Location: The Greenbelt

Postby mpav » 14 Nov 2008 15:55

brad911 wrote:lol....who do you think makes those "cheaper" no-name drinks? :wink:

Just because it doesn't have "Coca-Cola" written on the can doesn't mean KO isn't profiting from individuals buying that product. I think many people would be surprised at the amount of generic revenues that many manufacturers receive from generic brands.

Even if they're not manufacturing the generic brands themselves those alternate companies are using KO's supply chain and distribution system to get those products to market. No one will do that for free - its for a fee


Cott is the stuff I bought last time....but again, I think Coke kicks their ass, just because they are better, but still won't agree with the moat. (I just think we have a difference of definition, as I am not argueing Coke isnt a great company).

But I am not a KO owner, but my understanding was they they didn't do that (the syrup they sold to the bottlers had to have the brand etc.). To the second point, the model is teh bottlers would use their supply chain to get that stuff around.....you may get a fee, but doesn't give you a monopoly.
mpav
Silver Ring
Silver Ring
 
Posts: 533
Joined: 12 Jul 2007 13:30
Location: Toronto/Croatia

Postby bindexit » 14 Nov 2008 21:49

The comments have me thinking.

Moats can be in many forms such as barriers to entry due to capital investment required, governmental regulation (environmental, limiting or enforcing Canadian content, or other types), technological breakthrough or patents, tradition-uniqueness (i.e. buying the Yankees or Canadiens).

In determining if a company has a reasonable moat (reasonable because monopolies are rare), you can set criteria with tests to qualify if it is one.

Here's a thought on one possible test: 'need versus want' and then compare two examples to assess the stronger moat ranking. Here are two comparisons.

Why do people 'need' to go to Tim Horton's ? ...because they want a coffee (double double), donut, or cruiller, it's near by and/or fast.

Why do people 'need' to use CP rail? ... because they want to transport large bulk of goods or materials in least costliest way.

These examples above are not scientific but a starting block. I would say look and see if there are other available options to fill the 'want'. If there are few, it has a good chance of being a reasonable moat.

Among the ideas above, I did not note any sin stocks that have moats ... in Canada. I have been thinking about liq.un but did not look at number for reasonableness as a trust. In Ontario, it is government controlled. In Quebec, almost any dep (depanneur-corner store), grocery store can sell it along with a government crown corp. In the west, I wonder if this company has a monoply on liquor sales or moat like quality.

I guess I am looking for a utility like moat where there is guaranteed need for product or service with reasonable return . BTW, I appreciate the reference to the Kevin O'Leary article. Since yesterday, I learned that he and David Driscoll also owned Teranet.
bindexit
Silver Ring
Silver Ring
 
Posts: 455
Joined: 24 Feb 2007 14:43

Postby Goofyboy » 14 Nov 2008 22:48

mpav wrote:My logic for CNR or TRP is that to compete with them you have to build an infrastructure that is virtually impossible.


There are lots of industries that had an infrastructure advantage but died away. You can build a better/cheaper infrastructure via technology. Or even eliminate the need for it completely (e.g. Newspaper vs Internet. Fax vs snail-mail. Coal vs electricity to heat homes.)

With either CNR and TRP I can say no to them, it would just cost me more. I really can't see a cost advantage being a moat without Wal-mart/Costco having one.

Tim Horton and Coke have a huge mindshare, the former in Canada and the later worldwide. Standout side a Tim Horton and think about what you expect inside. Now rename it with a "GB's Coffee-N-Donuts" and now what do you expect inside? Now that's as strong a moat you are going to get for a large corporation outside of a sports team.

mpav wrote:So in the above examples, we would have to have a complete shift to replace them (stop using natural gas, new paradigm in how things are shipped).


Complete shifts do occur, you can't discount it from happening when you are talking about something that is suppose to be unassailable like a "moat". Its more like a "competitive advantage".

mpav wrote:But my point around moat is how much competition you have, not how well you perform against it.


I think you are thinking about a monopoly. A moat is to protect your business, its not suppose to go out and eliminate your competition.
Goofyboy
Silver Ring
Silver Ring
 
Posts: 117
Joined: 02 Sep 2006 14:24

Postby investor99 » 14 Nov 2008 23:53

Very interesting conversation. Adding to the MOAT list:

Mastercard
Visa
American Express
The best time to plant an Oak tree was twenty five years ago. The second best time is now.
--
http://themoneygardener.com/
User avatar
investor99
Gold Ring
Gold Ring
 
Posts: 1003
Joined: 22 Nov 2006 21:53
Location: Brantford, Ontario

Postby Peculiar_Investor » 15 Nov 2008 01:23

<sarcasm>
How about AIG - they have dug themselves a HUGE moat. To be sure, this is not a desirable moat.
</sarcasm>
User avatar
Peculiar_Investor
Gold Ring
Gold Ring
 
Posts: 4876
Joined: 01 Mar 2005 15:52
Location: Calgary

Next

Return to Stocks, Bonds, ETFs, Funds, REITS and More

Who is online

Users browsing this forum: Lazy Ninja, pmj, twa2w and 5 guests