Friday, April 17, 2015

Economic Moat in Action with Phillip Morris (PM)

What is an economic moat? This term was made popular by Warren Buffett and it refers to a companies ability to maintain a competitive advantage over its competitors. It does this to protect long-term profits and market share from competing firms. Read More at Investopedia. Investing in excellent companies with a moat and track record are factors when I make investment decisions.

Looking at a moat in action with Phillip Morris (PM). The bulls won and the bears lost after 1st quarter numbers of PM were released. PM increased market share and pricing power to beat expectations. It would be silly to say I expected good things from PM this quarter. There were negative questions going into the quarter with currency issues, how safe the dividend is, and the recent hold on the stock buyback program. I bought the stock in the face of these fears. Mr. Market gives opportunity to the ones who can see past short term distractions. This is where growth and a moat become important. I invested in PM because it has consistently proven itself. I also liked the idea of buying an asset that is yielding 5.2% knowing a dividend raise is expected in the coming months. PM has performed well since the purchase last month. The currency may still be a headwind but when this problem is over we could see PM's moat come into full effect. There is a lot of price to earnings P/E multiple expansion needed to equal its peers. In the past PM used its profits to buy other assets like Kraft foods and other companies. This diversified its holdings, but now after many spinoffs and being spun off from its parent company Altria Group (MO) the company gives almost everything back to shareholders. The last reason I will mention to why I really like this company is that it is a play to diversify away from the dollar. If someone is afraid of future dollar weakness PM makes all of its earning in other currencies. At the moment it is a ball and chain to its ankle but one day it will be a boost to earnings. 

The moat concept of investing is pretty easy. Looking at a few other recent purchases we can see how I like buying companies with a moat, strong brand, and franchise! BUT the main thing to look at is that Mr. Market has given the opportunity with big price dips from the highs. Each company has hit road blocks and the short term is cloudy. Taking a step back and looking at the big picture one can see longer term opportunity. I like looking at the long term track record of dividends and dividend growth threw economic booms and busts.

Companies with a moat purchased for the portfolio on dips.

American Express Company (AXP)
Exxon Mobil Corporation (XOM)
Yesterday Wal-Mart Stores Inc. (WMT)

Let me know what you are investing in!


Disclaimer: This is a personal weblog. The opinions expressed here are my own. All data and information provided on this site is for informational purposes only. Please do your own research before investing.

No comments:

Post a Comment

Buy I Bonds right now!

I have an opportunity for you to earn 7.12% risk free to your principle for the first 6 months of the investment and 9.62% (expected) for th...