5 Moat Companies Underperforming The Market

Investors limped into 2023 battered and bruised after the stocks suffered their worst decline since 2008.

While several beat-up names have rallied, many are starting to worry if the first two months were nothing more than a dead-cat bounce.

And it’s hard not to blame them. After all, Fed Chairman Powell’s latest Senate testimony came across as uber-hawkish.

During his testimony, he said nothing about the data suggests the Fed tightened too much.

Moreover, he said the Fed has MORE to do.

Ouch!

It is enough to get anyone emotional. And we all know when fear and greed enter the picture… bad decisions follow.

But that’s why it’s so important to get back to basics. And focus on high-quality companies that have proven themselves time and time again.

With so much uncertainty swirling in the air, there’s never been a better time to invest in moat stocks.

We’ve found five moat stocks that are down in 2023. But if history indicates, they won’t be down for long.

Finding Moat Companies

A moat company has a sustainable competitive advantage, which allows it to maintain its market position and fend off competition over a stretched period.

Some of its main characteristics include:

• Strong brand recognition and customer loyalty

• High barriers to entry

• Strong network effects

• Long-term vision and investment

• Pricing power

You’d think companies possessing these qualities would be sky-high right now, but we’ve found five underperforming in the market in 2023.

 5 Moat Companies Underperforming The Market: XOM

• Scale and diversification: The size and global reach of ExxonMobil (NYSE: XOM) give it economies of scale and diversification benefits small competitors may not have. This allows the company to exploit cost savings and efficiencies that smaller competitors cannot replicate.

• Access to resources: The company has significant access to oil and gas resources worldwide, which gives it a competitive advantage in terms of securing supply and managing costs.

• Research and development: ExxonMobil invests heavily in research and development, which has led to breakthroughs in areas such as shale oil and gas extraction and carbon capture technology.

• Brand recognition: ExxonMobil has a well-established brand that is recognized globally.

• High barriers to entry: The oil and gas industry is heavily regulated, which can create barriers to entry for new competitors. ExxonMobil is skilled at navigating regulations, giving the company a competitive advantage.

For years, analysts have been predicting the collapse of Exxon. However, in  2022, the company generated earnings of $55.7 billion and $76.8 billion of cash flow from operating activities.

And while the woke media likes to paint the company as a villain, Exxon started one of North America’s largest advanced recycling facilities, capable of processing more than 80 million pounds of plastic waste annually.

One way to play ExxonMobil is with options. And that’s exactly how Bryan Perry trades it in his Breakout Options Alert Service.

 5 Moat Companies Underperforming The Market: WMT

• Scale and distribution network: The size and extensive distribution network give Walmart (NYSE: WMT) significant economies of scale and bargaining power with suppliers. It allows the company to offer lower prices than many of its competitors, which is a key competitive advantage in the retail industry.

• Brand recognition: Walmart is one of the most recognizable retail brands in the world. The company is known for its low prices and convenient shopping experiences.

• Private label brands: Walmart has an extensive lineup of private label brands that are exclusive to its stores. This gives the company an advantage in pricing and product differentiation.

• Investments in technology: The company has made large investments in technology and e-commerce, allowing it to compete with online retailing giant Amazon.com. Its online sales have grown rapidly in recent years.

Despite all the fears of Amazon.com taking Walmart out of business, the company continues to thrive and generate higher revenues than Amazon.com.

 5 Moat Companies Underperforming The Market: HD

• Scale and distribution network: The Home Depot (NYSE: HD) is the largest home improvement retailer in the United States and has an extensive distribution network that includes over 2,000 stores across North America. This scale gives the company significant bargaining power with suppliers, allowing it to offer low prices and various products.

• Brand recognition: The Home Depot is a well-known brand with a long history of offering high-quality home improvement products and services.

• Customer service: The company strongly emphasizes customer service, which has helped build a reputation for being a helpful and reliable partner for home improvement projects.

• Investments in technology and e-commerce. The firm has also significantly improved its omnichannel selling capabilities by integrating its evolving digital presence with its expansive physical operations.

• Private label brands: The Home Depot offers a range of private label brands that are exclusive to its stores, giving it a competitive advantage in terms of pricing and product diversification.

The housing market has slowed, and the economy may weaken. But we still have a housing shortage in America, and the housing market has rebounded from worse situations.

Plus, The Home Depot is resilient,  the company has distributed a dividend for 144 consecutive quarters.

 5 Moat Companies Underperforming The Market: PG

• Scale and distribution capabilities: Procter and Gamble (NYSE: PG) has a vast global supply chain and distribution network, allowing it to deliver and scale products to consumers worldwide efficiently.

• Brand recognition: The company’s portfolio includes Tide, Pampers, Gillette, Crest and many others, which give it pricing power.

• Research and development: The company invests heavily in research and development, which allows it to stay at the forefront of product innovation.

• Focus on sustainability: The company has enhanced its brand reputation and maintained consumer loyalty over the long term thanks to its focus on sustainability and corporate responsibility.

During its latest quarterly earnings report, Procter raised prices to offset rising costs without losing market share. Its net margin was 17.4%, which is relatively high when compared to its last 10 years. Moreover, it pays an attractive annual dividend of $3.65 per share.

 5 Moat Companies Underperforming The Market: DE

• Wide distribution network: Deere & Company (NYSE: DE) has a wide global distribution network, allowing it to reach customers in different regions and markets. The company’s wide dealer network is key to its competitive advantage.

• Brand recognition: The John Deere brand is widely recognized across the globe, with a rich history spanning 186 years.

• Research and development: The company’s smart industrial strategy is paying off, and its technology stack is leading the way in agricultural, construction, and forestry equipment.

• Economies of scale: Deere has economies of scale in operations, purchasing and marketing. Its operating margin has improved from 13.6% in 2017 to 19.4% in 2022.

• Switching costs: The company’s equipment is often customized for specific customer needs, making it difficult and expensive for customers to switch to a different supplier.

Unlike some areas in tech where a young upstart company can come along and disrupt an entire industry, a threat like that is highly unlikely to Deere because the barrier of entry is so high.

Deere has been in business for more than 180 years and is on the cutting edge of ag tech.

It has proven it can consistently grow revenues, increase its dividend and outperform the market.

It is no wonder that it’s part of Mark Skousen’s Five Star Trader Portfolio.

Bottom Line

Sometimes the easiest decision in periods of uncertainty is to go with tried-and-true companies. All five stocks mentioned above are down on the year…but for how long?

They’ve proven they have long-term staying power and offer attractive dividends for investors seeking income.

If you’re interested in finding out about more high-yielding stocks there’s no better place than Bryan Perry’s Dividend Investing Weekly publication.

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