Wide-moat companies have historically been some of the best stocks to own in the FTSE 100 index. That’s because these companies are able to protect their market share and continually generate growth and profits.
The good news for investors is that there are a number of wide-moat businesses in the Footsie that offer value today. Here are three I believe are worth considering.
Global brands
Alcoholic beverage giant Diageo’s (LSE: DGE) moat comes from its brands, which include the likes of Johnnie Walker, Tanqueray, Smirnoff, and Guinness. These brands have all been around for decades and, as a result, they’re trusted – and repeatedly purchased – by consumers all over the world.
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This has led to higher revenues and profits for Diageo over the years. It has also led to more than 20 consecutive dividend increases.
Diageo shares currently trade on a price-to-earnings (P/E) ratio of 17.9. That’s above the FTSE 100 average. But given the group’s brand power and track record, I think it’s quite reasonable. Recently, portfolio manager Nick Train said he believes this stock could potentially command a P/E ratio of up to 33.
It’s worth noting that attitudes towards alcohol are changing. So there’s no guarantee that the company will have the same level of success in the future as it has had in the past.
As an investor in the company, however, I’m optimistic that its brands will remain popular with consumers.
Market dominance
Next, we have Rightmove (LSE: RMV), which operates the largest UK property portal.
Again, the moat here comes from the brand, which is very well known across the UK (Rightmove is usually the first place people turn to when looking to buy or rent property). Given its brand power and market dominance, agents can’t afford to ignore the platform when listing available properties.
Right now, Rightmove has a P/E ratio of 20.7 using the 2025 earnings forecast. Given that this is one of the most profitable companies in the Footsie, I reckon that’s a steal.
And I’m clearly not the only one who sees value here. Recently, Aussie company REA Group tried to buy the company.
It’s worth pointing out that rival OnTheMarket has a new owner, and it has a lot of financial firepower. This could test Rightmove’s moat in the years ahead.
I’m fairly optimistic the brand will hold up though.
Sticky software
Finally, we have Sage (LSE: SGE), which offers accounting and payroll software for small- and medium-sized businesses.
The moat here comes from the ‘stickiness’ of the company’s services. Once a business signs up for Sage’s software (and trains its staff, etc) it’s 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’s value on offer at that multiple. Software companies usually have higher valuations because they tend to have recurring revenues. And compared to some other software companies, Sage is trading at a relatively low valuation. Rival Intuit, for example, has a P/E ratio of 32.
Of course, there are risks here. One is economic weakness. This could see small- and medium-sized firms hold back on IT spending.
Taking a long-term view however, I think this stock will do well as the world becomes more digital.
