Companies With Strong Competitive Advantages

First off, I believe it is important to have a watch-list of stocks with strong competitive advantages. By simply buying these stocks when they get cheap and selling them when they get expensive is a strategy in itself. Why? Because the downside is protected to a large extent with these companies. They all have solid financials, a strong balance sheet and a growing dividend. Therefore it is quite common to see these stocks being snapped up quite quickly when they become excessively oversold. Here is a present typical watchlist that I pick from when trading companies with strong competitive advantages. Some of these stocks will be slightly overvalued at present whereas others will be undervalued. However from the research I have done on these companies below, their long term financials and forward looking fundamentals entitles them to be on this list.

L Brands (NYSE:LB)
General Electric Company (NYSE:GE)
Microsoft (NYSE:MSFT)
Emerson Electric (NYSE:EMR)
Procter & Gamble (NYSE:PG)
VF Corp (NYSE:VFC)
Visa Inc (NYSE:V)
Walmart (NYSE:WMT)
Chevron (NYSE:CVX)
Exxon Mobil (NYSE:XOM)
Gilead (NASDAQ:GILD)
McKesson (NYSE:MCK)
Pfizer (NYSE:PFE)
Starbucks (NYSE:SBUX)
Twenty First Century Fox (NYSE:FOX)
CSX Corporation (NYSE:CSX)
Coca Cola (NYSE:KO)
Costco (NYSE:COST)
Deere & Co (NYSE:DE)
Intel Corp (NYSE:INTC)
McDonald’s (NYSE:MCD)
PepsiCo Inc (NYSE:PEP)
Novartis AG (NYSE:NVS)
3M Corp (NYSE:MMM)

Before we get into trading examples, let’s see how these stocks’ valuations are shaping up at present. Straight away we want to zone in on the companies which are trading below their 5 year averages with respect to the key valuation metrics. Many companies in the table will actually be trading above their historic valuations as stocks have been in a roaring bull market since 2009 ( information recorded – 07/31/2017). However many of these will one day become undervalued once more which is why they remain on the watchlist for the long term. Presently though, the stocks that stick out from a valuation standpoint are L Brands, McKesson Corp, CVS Health Corporation and Gilead so we will be focusing our attention to these stocks in upcoming posts

First though, lets go through some long term strategies for the dedicated income investors. Many investors prefer a hands off approach with their portfolios due to time restraints but still obviously want a portfolio that will perform well over the long term. Believe me, I totally get it. Therefore if you are an investor who just wants to set up a portfolio from scratch, buying all these stocks today and reinvesting the dividends every quarter would be a solid long term strategy. My recommendation would be to deploy the quarterly dividends ( annual in the case of Novartis) into the stocks which have been beaten up the most ( the 4 we have earmarked above). This will increase the long term returns over time.

Income investors need to understand that their portfolio may go down in value over time but the “income” element should always tend to increase to the upside as long as significant capital is not being withdrawn from the portfolio. Remember that the annual or quarterly gains are much more important than the overall value of the portfolio. Long term income investors should never sell their stock to ensure their income grows over time.

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