2 Wide Moat Stocks We're Keeping an Eye On

Let’s talk about moats. Not the kind you find around castles, but the kind that protect companies from their competitors. 

When we say a company has a "moat," we’re talking about its ability to fend off rivals and keep profits rolling in. 

Why do moats matter?

Think of them as safety nets for your investments. Companies with wide moats are often better equipped to handle whatever market throws at them … and insulate themselves from competition. 

This idea comes straight from Warren Buffett’s playbook. He’s always looking for businesses with something special, like a strong brand or unique tech, that keeps competition at bay. 

For us investors, finding these moat-worthy companies is key to building a portfolio that stands the test of time.

Why Watch the VanEck MOAT ETF?

Sometimes you’ll be lucky enough to notice moats on your own. Maybe you noticed everyone was addicted to their iPhone. Or that everyone swips a Visa (NYSE: V) or Mastercard (NYSE: MA) to pay for things. 

But these flashes of insights only come so often, if at all. And hunting down individual moat stocks can be time-consuming. 

That’s why we keep an eye on the VanEck Morningstar Wide Moat ETF (BATS: MOAT). This ETF bundles together a bunch of companies that Morningstar (NASDAQ: MORN) has identified as having solid, competitive moats. (Related reading: The 7 Best ETF Brokerages)

As an added bonus, it’s equal-weighted, so you’re not just betting on one or two big names. Plus, the ETF also focuses on companies that are fairly valued, giving you a good mix of quality and value.

MOAT has slightly outperformed the S&P500 since inception:

Source: VanEck

What We're Watching in the MOAT ETF

Comcast

One name we’re watching in MOAT is Comcast (NASDAQ: CMCSA), clocking in at 2.4% of the fund. 

Comcast’s moat comes from its cable business. The majority of US homes today can receive fixed-line internet access service from only two providers: the traditional cable or phone company. Across nearly half of the US, that cable company is Comcast. The cost to enter the market and compete with Comcast is enormous.

While CMCSA trades above intrinsic value according to Ben Graham’s formula, it may be undervalued according to a DCF formula: 

• CMCSA ($39.35) is trading above its intrinsic value of $32.32, according to an updated version of Benjamin Graham's Formula from Chapter 11 of "The Intelligent Investor"
• CMCSA ($39.35) is significantly undervalued by 52.8% relative to our estimate of its Fair Value price of $83.37 based on Discounted Cash Flow (DCF) modelling, which includes a healthy margin of safety

It’s also a buy according to top analysts we track, with implied upside anywhere from 9-39%:

Zimmer Biomet Holdings

It’s a similar story with Zimmer Biomet Holdings (NYSE: ZBH), which is 2.29% of the fund.

This company makes orthopedic devices for joints and bones. 

Here, the moat comes from substantial switching costs for orthopedic surgeons. The extensive instrumentation, or tool sets, used to prepare bones and install implants are specific to each company. So the learning curve to become proficient in using one company's instrumentation is huge. 

ZBH is good value based on its earnings relative to its share price (22.55x), compared to the US Medical Devices industry average (42.39x).

And it’s another name top analysts like, with upside targets between 7-37%:

Overall, it’s worth combing through MOAT every once in a while to study up on wide moat value stocks like these two above. 

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