How to invest like the pros with these 2 top stocks

The best long-term investors that adhere to the Foolish methodology (or similar) are known to rigidly stick to buying only companies that satisfy a pre-defined list of attributes. These may include quantitative factors such as growing earnings, or qualitative considerations like the quality of management.

Today though, I would like to focus on two companies that satisfy another pillar of long-term investing; the sustainable moat or competitive advantage.

The Moat

The moat of a castle was used to make it more difficult or slower for enemies to enter the fortified area. Most people envisage a castle moat as a ring of water, usually filled with all types of undesirable things, which meant enemies would need more than pure force to enter the castle.

The same principle applies in business! Companies that are either so large that competitors find it difficult to keep up on cost, or have patents that restrict competitors from entering the market (castle) have an advantage (moat) that fortifies their position (and profits).

Two ‘Moaty’ Companies

Australia is a relatively unique market, with many sectors dominated by only one or two big names that effectively undercut smaller players.

Woolworths Limited (ASX: WOW) is a company that instantly comes to mind for investors looking for competitive advantages. Woolworths’ supermarkets have shown incredible resilience over the last 20 years by consistently delivering great returns on shareholder equity and maintaining or growing market share against major rival Coles (owned by Wesfarmers Ltd (ASX: WES)). Woolworths’ moat comes from its dominant store network, established and efficient low-cost supply chain, and related businesses in the liquor and hardware sectors.

Brambles Limited (ASX: BXB) is a company with a very traditional moat. Brambles is the worldwide leader in the supply of transport pallets, crates and containers in over 50 countries. The company is a supply chain specialist and provides customers with a cost-effective way of improving business efficiency by pooling goods. The global scale of Brambles provides an advantage over competitors who must invest significant sums in order to build a similar distribution network, and that’s before the intellectual property contained within group specialists is considered!

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Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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