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Companies with wide moats have historically been some of the best companies to own in the market FTSE100 index. This is because these companies are able to protect their market share and consistently generate growth and profits.
The good news for investors is that there are plenty of wide-moat companies in Footsie that offer value today. Here are three that I think are worth considering.
Global brands
A giant of alcoholic beverages Diageo‘s (LSE: DGE) moat is named after its brands, which include: Johnnie Walker, Tanqueray, SmirnoffAND Guinness. These brands have been on the market for several decades, thanks to which they are trusted – and repeatedly purchased – by consumers around the world.
This has led to higher revenues and profits for Diageo over the years. It also led to over 20 consecutive dividend increases.
Diageo shares are currently trading at a price-to-earnings (P/E) ratio of 17.9. This is above FTSE100 average. However, considering the strength of the brand and the group’s track record, I think it’s quite reasonable. Portfolio manager Nick Train recently said he thinks the stock has the potential to reach a P/E ratio of 33.
It is worth noting that the approach to alcohol is changing. Therefore, there is no guarantee that the company will be as successful in the future as it was in the past.
However, as an investor in the company, I am hopeful that its brands will remain popular with consumers.
Market domination
Come on, we have Right move (LSE: RMV), which operates the UK’s largest property portal.
Again, Moat comes from a brand that is very well known across the UK (Rightmove is usually the first place people turn to when looking to buy or rent a property). Given the brand’s power and market dominance, agents cannot afford to ignore the platform when listing available properties.
Rightmove’s current P/E is 20.7 based on its 2025 earnings forecast. Considering this is one of the most profitable companies in Footsie, I think this is a steal.
And apparently I’m not the only one who sees value here. Recently an Australian company REA Group tried to buy the company.
It is worth noting that rival OnTheMarket has a modern owner and has great financial strength. This could test Rightmove’s moat in the coming years.
However, I am hopeful that the brand will survive.
Sticky software
Finally we have it Sage (LSE: SGE), offering accounting and payroll software for tiny and medium-sized enterprises.
The moat is due to the “stickiness” of the company’s services. Once a company has signed up to Sage (and trained its employees, etc.), it is unlikely to switch to a competitor.
At first glance, these stocks seem pricey. Currently, the P/E ratio here is 24.1.
However, I believe there is value to offer at this multiple. Software companies tend to have higher valuations because they tend to have recurring revenues. Compared to some other software companies, Sage’s valuation is relatively low. Compete Intuitionfor example, it has a P/E ratio of 32.
Of course, there are risks here. One is economic weakness. This may cause tiny and medium-sized companies to refrain from spending on IT.
From a long-term perspective, however, I think this stock will do well as the world becomes more digital.