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Moat Stocks Unveiled: A Strategic Guide to Sharpening Your Search Focus

As we all know, there is no line item in a company’s financial statements that says moat. Finding companies with defendable moats is just as much art as it is science. It takes research and a little know how. As well, the age old process of elimination can help focus your search.

It doesn’t hurt when academia helps us out and crunches some numbers. The Stern School of Business at NYU helped us all by creating (and updating) a great chart. The chart organizes the investable universe of the US by industry and provides the average ROIC for each. As well, they indicate how many companies are within each industry. Link to NYU ROIC Chart here.

I downloaded their chart and organized into two charts of my own. The first is all industries that have an average ROIC above 19%.

Then we have the industries that are sub 7% ROIC which means there is little real return above the S&P 500 average cost of capital as of 2/9/2024 of ~6%.

The takeaway here is that some industries are worth looking around within first. While others like financial firms and insurance companies, do not show well.

One thing to keep in mind is that this is not an absolute list. For example, you will note that Drugs (Biotechnology) is very low on the list. It also has a huge number of companies. You can be sure that many of the companies in the Biotech space are young and not profitable. You can also bet with certainty that there are companies in the Biotechnology space that have enormous ROIC and enviable moats.

I present this list as it gives us a good place to start looking for low hanging fruit. If you have an industry with a relatively small number of companies and a high average ROIC, there might be a winner in that group. Good luck out there.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

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