As investors, we're not always rewarded for being unique. Companies are much the same, unless they can turn their speciality into some sort of competitive advantage where their products are superior to their rivals.
Companies can create an economic moat around their businesses by utilising their sheer size and scale of operations. This has helped many grow from tiny small-caps into dominant S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO) giants with steadily growing revenues.
For example, Commonwealth Bank of Australia (ASX: CBA) has built a wide economic moat around its banking services by using its scale to offer better interest rates on loans and expand into other products. Coupled together, it and Westpac Banking Corp (ASX: WBC), control nearly 50% of Australia's mortgage market.
However, despite its dominance, competition is increasing and growth is now becoming more difficult to come by. As such, I believe its current share price is too high to justify a 'Buy' rating. I believe it's more likely a 'Sell'.
Rio Tinto Limited (ASX: RIO) is our second biggest resources company by market capitalisation, but Australia's largest iron ore miner. Its huge scale has enabled it to expand production capacity significantly over the past few years, with room for more growth in the near future. Thanks to a falling iron ore price Rio's earnings will come under pressure in the next 12 months and, as a result, I would like to see its half-yearly report (due out in August) before committing my portfolio to a purchase.
Coca-Cola Amatil Ltd (ASX: CCL) is different from the other two companies as it has a sustainable competitive advantage because it has the exclusive right to distribute and bottle drink products such as Coca-Cola, Sprite, Powerade and Mother (just to name a few). After a number of recent profit downgrades, investors have become concerned about its growth prospects. However with a push into Asian markets, long-term investors could realise significant value by holding onto CCA shares at current prices.
The ASX's BEST dividend stock
Whilst all three of these businesses have a reputation for growing earnings and paying exceptional dividends, none of them are in my portfolio. Although CCA would be my pick of the bunch even it isn't at the top of my buy list…
