Over the last year, the Brambles Limited (ASX: BXB) share price has dropped 25% as its largest segment (CHEP USA) has faced a competitive trading environment in the US.
Competition has come from its pallet pooling rival, PECO (which paints its pallets red, whilst CHEP pallets are blue) and independent, non-pooled “white wood” / non-painted operators. The cost of whitewood has been decreasing which makes it difficult for CHEP to convince customers to use its pooling solutions. This has led to market concerns over the sustainability of pallet growth for CHEP.
Investors are also faced with uncertainty over the impact that the rise of e-commerce & Amazon will have on Brambles. The fear is that instead of most goods being shifted around on pallets for delivery to stores, the logistics sector will increasingly see smaller parcels being loaded into postal vans and dropped off at houses and apartments to online buyers.
Despite all these concerns, Brambles remains a quality business that can compete for a very long time. Warren Buffett popularised the term “economic moat”, which refers to a business’ ability to maintain its competitive advantages to protect its long-term profits and market share from competing firms.
The following are indicators that Brambles could have a wide economic moat:
- Its global operations provide it with economies of scale and cost advantages.
- It has an extensive and established supply chain network which locks in customers, particularly major retailers.
- It operates in many emerging markets where it has a first mover advantage and competition is low.
Concerns over the impact of Amazon on Brambles appear to have been priced in and now could be a good time for investors to have a closer look at this blue-chip share.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
Motley Fool contributor Kevin Gandiya has no financial interest in any company mentioned.
You can find Kevin on Twitter @kevingandiya
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
- Warren Buffett is buying banks – should you too? – November 16, 2018 10:34am
- Telstra CFO to replace Elon Musk as Chair on Tesla Board – November 9, 2018 11:08am
- 5 ASX shares that I think are your best bet on Melbourne Cup Day – November 6, 2018 7:00am