Wide-moat companies enjoy a near-monopoly status in their respective niches. Which stocks have secured their position?
Why do people buy Coca-Cola (NYSE:KO) beverages over cheap alternatives? Astute investors already have the answer – wide moat positioning. These publicly traded companies have such high brand recognition that customers are willing to pay a premium.
In addition to such an intangible asset as branding, wide-moat companies have other advantages, such as copyrights and patents, to enjoy near monopoly status in their respective niches. And if they are already entrenched, the alternative to switching would prove too burdensome for customers to bear.
Wide-moat companies have also demonstrated their scaling capacity, making it difficult for their competition to take a chunk of their market share. Of the Magnificent Seven, six stocks fit wide moat criteria: Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Meta Platforms (NASDAQ:META), Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and the ever-burgeoning Nvidia (NASDAQ:NVDA).
But which less known wide moat stocks should investors consider outside the Magnificent Seven?
1. Axos Financial
Based in San Diego, Axos Financial (NYSE:AX) holds several subsidiaries – Axos Bank, Axos Advisor Services, Axos Invest, and Axos Clearing. As a fully digital bank without local branches, Axos enjoys a drastically reduced brick-and-mortar overhead, serving customers 24/7 via mobile apps.
Accordingly, Axos’ wide moat angle comes from zero-fee checking accounts with no monthly maintenance fees and unlimited domestic ATM fee reimbursements. Axos Financial partnered with Q2 Holdings (NYSE:QTWO) for its proprietary Q2 ClickSwitch software-as-a-service (SaaS) digital account solution.
As one of the first and largest digital banks in the US, Axos Bank keeps outperforming traditional banks. As of its Q2 FY24 earnings report, Axos Financial reported an 86.1% year-over-year increase in net income, with a 15.9% adjusted earnings per share growth from $1.38 to $1.60.
Annually, Axos increased total deposits by 12.6% to $18.2 billion, of which 90% was FDIC-insured. The bank’s total liabilities increased by 6% vs total asset growth of 6.3% at $21.6 billion. On February 12th, the company announced a $100 million stock buyback program.
Based on six analyst inputs pulled by Nasdaq, AX stock is a “strong buy”. The average AX price target is $70 vs the current $54. The high estimate is $77, while the low estimate is above the current level at $62 per share.
2. Adobe
Adobe (NASDAQ:ADBE) stock took a 13% dive over the week, representing a buy on the weakness opportunity. The main culprit has been widely pinpointed to OpenAI’s latest feature – Sora text-to-video generator. However, generalist Sora is unlikely to unseat Adobe’s market dominance across its precision graphics software, from Adobe Photoshop and InDesign to Illustrator.
Furthermore, Adobe has already integrated its AI Adobe Sensei into its product lineup to combine the best of both worlds – automated convenience and fine control. As of the latest Q4 FY23 earnings, Adobe delivered record $19.41 billion revenue growth and 17% EPS increase year-over-year.
During the year, the company generated $7.1 billion in cash and cash equivalents, compared to $4.2 billion a year prior. For the year, Adobe gained $1.48 billion in net income, a 26% uptick from the previous year.
Based on 32 analyst inputs pulled by Nasdaq, ADBE stock is a “strong buy.” The average ADBE price target is $653 vs the current $546. The high estimate is $730, while the low forecast is $465 per share. Adobe’s next earnings report is scheduled on March 20th with an estimated $3.57 EPS vs current $3.23 EPS (diluted GAAP).
3. Salesforce
Over the last three months, Salesforce's (NYSE:CRM) stock is up 32% compared to the S&P 500 (SPX) market benchmark of 11%. Salesforce managed to corner the customer relationship management and analytics market, benefiting from the network effect and making it burdensome to switch to alternatives.
In the Q3 FY24 earnings, Salesforce increased revenue 11% year-over-year to $8.72 billion, with a net income increase of 14%. Compared to a year-ago quarter, the company raised its free cash flow by 1087%, from $115 million to $1.36 billion. For the full year FY24 operating cash flow guidance, Salesforce raised it to 30% – 33% year-over-year growth.
Based on 43 analyst inputs pulled by Nasdaq, CRM stock is a “strong buy.” The average CRM price target is $291 vs current $289. The high estimate is $357, while the low forecast is $212 per share. For the reported quarter, Salesforce returned $1.9 billion to shareholders via a stock repurchase program.
Announced in March 2023, the buyback program doubled from 2022’s $10 billion to $20 billion.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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