When looking at which ASX 200 stocks to buy, checking a company's competitive advantage is a great way to start. There are hundreds of companies on the ASX and hundreds of thousands around the world. But only a small portion of these companies will turn out to be winning investments.
As Warren Buffett teaches, one of the best ways to find these winners is by looking for an intrinsic competitive advantage. Think of some of Warren Buffett's favourite investments. Coca-Cola has an unbelievably powerful brand, as does Apple and American Express. Meanwhile, Amazon.com has an unrivalled scale, and usually can offer products to customers at one of the cheapest prices available.
It's these sorts of qualities that can turn a share into a good investment.
Here on the ASX, there is one ASX 200 stock that has an obvious and significant competitive advantage. So today, let's discuss Lottery Corporation Ltd (ASX: TLC).
Lottery Corporation has only been on the ASX in its own right for just over a year, having been spun out of Tabcorp Holdings Ltd (ASX: TAH) back in May 2022. The company does pretty much what it says on the box, running lotteries in all states and territories, with the exception of Western Australia.
So what is Lottery Corp's magnificent competitive advantage?
How does this ASX 200 stock have a competitive advantage?
Well, Lottery Corp is the only company that has a license to operate lottery and Keno services in almost every Australian state or territory. For example, Lottery Corp's New South Wales license only expires in 2050, while its Queensland license is up in 2072.
This gives Lottery Corp a rare monopoly on the ASX. And it makes for one heck of a competitive advantage. It is literally illegal for others to compete with Lottery Corp.
Of course, this is not a foolproof investment. Licenses can be revoked, and regulatory landscapes do change over time. We all saw what happened to Star Entertainment Group Ltd (ASX: SGR) and its licences when criminal wrongdoing was alleged to have occurred.
But the fact remains that Lottery Corp seems very well placed to grow shareholder wealth over time by exclusively offering lottery and Keno services on a monopolistic basis.
That's the view of one ASX broker. As we covered earlier this week, broker Citi gave Lottery Corp shares a buy rating. That came with a 12-month share price target of $5.70. Citi noted Lottery Corp's "defensive qualities" as one of the factors behind its positive rating. As well as its estimation that the company will be able to jack up its dividends substantially over the coming year.
The broker stated that "the market underestimates the uplift to the contribution margin following the increase in the commission rate and cut to third party digital commissions".
So there you have it, what one ASX expert thinks of the Lottery Corp. Regardless of how its shares perform over the coming 12 months, we can't deny that this is one unique ASX 200 stock.
