Wide-Moat, Wide Opportunity
“Wide-moat” companies have strong competitive advantages including the power to maintain large profit margins. A key attribute of wide moat companies is their focus on innovation.
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  • In addition to its familiar style-boxes, Morningstar produces a grid in which they assign values based on moat and uncertainty.
  • Moat refers to how likely a company is able to keep competitors at bay for an extended period. Attributes that give companies wide economic moats include huge market share, low-cost producer and high-customer-switching costs.

  • Uncertainty is how Morningstar rates a company’s level of business risk. Morningstar considers sales predictability, operating leverage and financial leverage to assign a rating from “low” to “extreme” uncertainty.

  • Many investment professionals equate uncertainty with opportunity. Investors should look for skilled managers that have the ability to identify innovative, high-quality, wide-moat companies in sectors experiencing change and uncertainty. These companies look attractively valued in the current environment.

The views expressed are the views of Fred Alger Management, Inc. as of February 2017. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. 

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