One strategy investors may consider is buying S&P/ASX 200 Index (ASX: XJO) stocks in companies that have a wide economic 'moat'.
An economic moat refers to a company's ability to maintain an advantage over competitors.
A helpful metaphor for understanding this concept is imagining a company as a castle. The body of water (or moat) surrounding it is the advantage that protects the castle (or company) from competitors challenging its position in the market.
The competitive advantages the company holds over the market could be aspects like:
- Low-cost production
- Brand recognition
- Intellectual property
- High switching costs
- Intangible assets
There are several ASX shares that benefit from having a moat.
Here are two that investors looking to add economic 'moat' stocks to their portfolios might consider.
Cochlear Ltd (ASX: COH)
Cochlear is a medical device company that specialises in designing, developing and manufacturing hearing implants and solutions.
Its economic moat is largely due to the 500 patents and trademarks on its products.
Cochlear's reputation for producing high-quality and reliable products and its extensive global distribution network also contribute to its moat.
This ASX200 stock has had modest growth over the past 12 months, rising 5.32%. This is largely in line with the healthcare sector as a whole over this time.
The company is trading well below its 52-week high of $350.31, although it has gotten off to a red-hot start in 2025, rising more than 7% since January 1.
This could be influenced by its new CFO, Sarah Thom, who began her new role this year.
Bell Potter has a hold rating on the ASX share, suggesting it is close to fair value.
However, Coclear's long-term aim for annual revenue growth of around 10% coupled with its core hearing implant business, gives it a competitive advantage in the market.
CSL Ltd (ASX: CSL)
CSL is a leading global biotechnology company. Its three key areas of focus are influenza vaccines and rare and serious diseases.
Its economic moat is influenced by its intellectual property. CSL has more than 1,500 patents and trademarks in an industry with high barriers to entry for new competitors.
It is a blue-chip share trading below fair value, according to experts.
Over the last 12 months, this ASX200 stock has fallen 7.09%.
Bell Potter has a buy rating and a $345.00 price target on the company's shares. This implies a potential upside of 27% for investors over the next 12 months.
Similarly, Goldman Sachs has a buy rating and a $325.40 price target on CSL's shares. This implies a potential upside of 19% for investors over the next 12 months.
