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Wide-moat companies have historically been some of the best stocks to own FTSE 100 index. That is because these companies are able to protect their market share and continue to generate growth and profits.
The good news for investors is that there are a number of broad businesses in the Footsie that offer value today. Here are three that I believe should be considered.
Global products
The alcoholic beverage giant Diageo‘s (LSE: DGE) moat comes from its products, which include the likes of Johnny Walker, Tanqueray, Smirnoffagain Guinness. These brands have been around for years and, as a result, are trusted – and bought repeatedly – by consumers around the world.
This has led to higher revenues and profits for Diageo over the years. It also led to more than 20 consecutive stock gains.
Diageo shares currently trade at a price-to-earnings (P/E) ratio of 17.9. That’s more than FTSE 100 average. But given the strength of the team’s product and track record, I think it makes perfect sense. Recently, portfolio manager Nick Train said he believes the stock could command a P/E ratio of as high as 33.
It is worth noting that the attitude towards alcohol is changing. Therefore there is no guarantee that the company will have the same level of success in the future as it has in the past.
As an investor in the company, however, I am confident that its products will remain popular with consumers.
Market dominance
Next, we have Rightmove (LSE: RMV), which operates the UK’s largest freight portal.
Again, the groove here comes from the brand, which is well known throughout the UK (Rightmove is often the first place people turn to when looking to buy or rent a property). Given the brand’s strength and market dominance, agents cannot afford to ignore the platform when listing available properties.
Currently, Rightmove has a P/E ratio of 20.7 using an earnings forecast to 2025. Since this is one of the most profitable companies in Footsie, I think that’s a steal.
And apparently I’m not the only one who sees the value here. Recently, an Aussie company REA Group tried to buy the company.
It’s worth pointing out that OnTheMarket’s competitor has a new owner, and it has a lot of potential for a financial explosion. This could test Rightmove’s fortunes for years to come.
I hope the product will hold up.
Sticky software
Finally, we have it Sage (LSE: SGE), which provides accounting and payment software to small and medium-sized businesses.
The drain here comes from the ‘stickiness’ of the company’s services. Once a business signs up for Sage software (and trains their staff, etc) they are unlikely to switch to a competitor.
At first glance, this stock looks expensive. Currently, the P/E ratio here is 24.1.
However, I believe there is value to be found in that repetition. Software companies tend to have higher valuations because they tend to have recurring revenue. And compared to other software companies, Sage trades at a very low valuation. A rival Intuitfor example, it has a P/E ratio of 32.
Of course, there are risks here. One is economic weakness. This can see small and medium firms involved in IT implementation.
Taking a long-term view though, I think this stock will do well as the world goes digital.
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