11 Companies With A Competitive Advantage For Long-Term Investors

We have compiled a list 11 companies with a competitive advantage for long-term investors, so as to provide our readers with 11 stocks that we believe have the makings of long-term success stories.

Most literature for beginner investors has one thing in common, which is that they advise investing for the long-term. This makes sense, especially for wealthy investors that are willing to trade off some returns for lower risk and for investors willing to build a retirement portfolio, in which case they don’t require the returns as disposable income. For individuals who consider investing as a day-to-day job, there are other options, which put focus on returns rather than safety. However, others should follow one of Warren Buffett‘s principles: “buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”

One of the main rules of free market is competition. Every year, thousands of companies go bust because they simply can’t compete. At the same time, there are a few companies that have managed to establish themselves in the market so solidly that it seems like nothing will move them from their leading positions. The main reason why these companies are thriving and have been around for decades is their competitive advantage. In turn, companies with competitive advantage are great long-term investments. However, when picking a company with a competitive advantage, it’s important to analyze the sustainability of the advantage. If other market players can replicate it, or develop something better, then the company can lose its advantage very quickly.

There are many ways a company can build and/or maintain a competitive advantage. In highly competitive and fast-moving sectors like technology and healthcare, research and innovation is what helps companies stay ahead of the competition. When dealing with customers, competitive advantages could be lower prices, strong brand value, and superior products. In dealing with competition in the same space, a public company can have a competitive advantage over a private one, because it can raise capital from the public easier. Barriers to entry due to government restrictions and regulations also represent an important competitive advantage.

In this way, the best performing companies usually have a number of competitive advantages and try to hold onto them in order to maintain their leadership positions in their respective industries, although they’re not always successful. For example, Apple Inc. (NASDAQ:AAPL), which for many years had been considered one of the most innovative companies, has been slowly losing ground to other companies. The popularity of the iPhone stumbled in light of the introduction of alternative products from Samsung and other companies which managed to develop great products and offer them at lower prices, which led to Apple losing market share. Nevertheless, Apple still has had a bunch of innovative products and still maintains some competitive advantages that we will discuss later on in this article.

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Having said that, let’s take a look at 11 companies with a competitive advantage for long-term investors. Some of these companies have a long history of being market leaders in their respective industries, while others managed to capitalize on other strengths to stay ahead of the competition. Since the companies in this list were included with long-term investment in mind, we also took into account whether or not the advantages are sustainable over the long run.

Check out the list, which is ranked in no particular order, beginning on the next page.

1. Apple Inc. (NASDAQ:AAPL)

Let’s start with Apple Inc. (NASDAQ:AAPL), since we have already mentioned it. The tech giant might have lost its innovative edge, but it still has a number of other competitive advantages, the biggest of which is its brand. According to Forbes, Apple Inc. (NASDAQ:AAPL) has the most valuable brand in the world, estimated at $170 billion. It also has millions of loyal fans who are willing to spend money on whatever product Apple makes. In addition, Apple is sitting on a huge pile of cash, which will allow it to invest in the development of new products, like an Apple Car, or grow through acquisitions.

2. Amazon.com, Inc. (NASDAQ:AMZN)

Amazon.com, Inc. (NASDAQ:AMZN)’s main competitive advantage is its size. It has built warehouses all around the world, manages to improve their efficiency through automation, and is currently working on building its own logistics network through buying airplanes and cargo ships. All of these factors allow Amazon to ship products faster and at lower costs than competitors. The addition of drone delivery will only strengthen its position. What also makes Amazon a good long-term investment is its diversification into other areas, like cloud computing, where its Amazon Web Services unit is one of the leaders and is expected to remain so for the foreseeable future.

3. Alphabet Inc (NASDAQ:GOOGL)

Trailing only Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL)’s Google is the second-most valuable brand at $101.80 billion. The company is a market leader in online advertising and has a number of online services (Search, YouTube, Chrome, Gmail) which have over 1 billion monthly active users. Alphabet is heavily investing in Artificial Intelligence and Machine Learning and the integration of AI with its existing services is what will maintain its competitive advantage in the market.

4. Intel Corporation (NASDAQ:INTC)

Intel Corporation (NASDAQ:INTC) is currently the largest semiconductor manufacturer in terms of sales and market cap. Its size and economies of scale are among Intel’s main competitive advantages, as they represent potential barriers to entry, although other large semiconductor companies like QUALCOMM, Inc. (NASDAQ:QCOM) and Samsung Electronics also benefit from them. However, what differentiates Intel from its competitors and is one of the reasons why the stock is a good long-term investment is its leading market share in the server processors market. As the business world embraces cloud computing, Intel stands to benefit, as it is estimated that its market share in this area amounts to around 90%.

5. Facebook Inc (NASDAQ:FB)

Facebook Inc (NASDAQ:FB)’s big competitive advantage is how the company handles big data, one of the main assets of the 21st century. Facebook analyzes a lot of metrics about each of its users in order to provide better ad targeting. Combined with its 1.60 billion users and huge monthly active users and monthly mobile active users and it’s easy to see why Facebook dominates the social networking industry, significantly outrunning its closest competitors, Twitter and LinkedIn.

6. Microsoft Corporation (NASDAQ:MSFT)

Microsoft Corporation (NASDAQ:MSFT)’s competitive advantage comes from a range of factors like economies of scale, big network effect, brand strength, and intellectual property portfolio. Microsoft’s Office software has been a leading product in the productivity application space and with the transition to a subscription-based model, Office 365, it has gained more momentum and strengthened the segment’s position as one of its main cash cows. It is also currently the second-largest player in the cloud space and it absolutely dominates the desktop operating systems market, with share of around 90%. All these factors show why Microsoft has great competitive advantages and is likely to remain one of the best companies in the tech sector and a great long-term investment opportunity.

7. The Coca-Cola Co (NYSE:KO)

The Coca-Cola Co (NYSE:KO) has been around for over a century now. In the 125 years of its history it grew from a producer of a single fizzy drink to a conglomerate that encompasses over 500 brands around the world and sells 1.9 billion servings of drinks every day, in almost every country on the planet. With its huge distribution network and strong brand value, it’s easy to see why The Coca-Cola Co (NYSE:KO) is a company that will be around for decades, if not centuries to come.

8. Colgate-Palmolive Company (NYSE:CL)

Colgate-Palmolive Company (NYSE:CL) is another company that has a long history. Since 1806, the company has grown to own some of the most popular households brands like Colgate, Sanex, Teen Spirit, and Palmolive. Its large portfolio of brands is what gives Colgate-Palmolive Company (NYSE:CL) its competitive advantage, although it faces competition from some smaller local and large international producers. Nevertheless, the company has managed to prosper in a highly-competitive industry and even managed to establish itself as a dividend king by consistently increasing its dividends for the last 54 years. It’s also worth mentioning that Colgate-Palmolive has been paying dividends since 1895.

9. Procter & Gamble Co (NYSE:PG)

Procter & Gamble Co (NYSE:PG) is another producer of household products and a dividend king. The company owns a lot of popular brands, with Always, Ariel, Febreeze, Oral-B, and Pampers being among those that generate annual sales of over $1 billion. Procter & Gamble Co (NYSE:PG)’s diversification across different product types and geographies is one of its main advantages, but it’s also one of its weaknesses, which is why a couple of years ago, the company started to dispose of some of its under-performing brands. The move was applauded by investors and analysts, but some expressed concerns that it will leave Procter & Gamble Co (NYSE:PG) more vulnerable to declines in its remaining assets.

10. FedEx Corporation (NYSE:FDX)

We are going to finish our list with the two biggest logistics companies, one of which is FedEx Corporation (NYSE:FDX). Generally speaking, logistics is an industry that has big barriers to entry, mainly because of the size required to operate efficiently. Being in operation for over 40 years, FedEx Corporation (NYSE:FDX) has managed to build a huge network spread across the entire world. Providing customers with speedy and cheap delivery services is what has helped FedEx Corporation (NYSE:FDX) establish a highly-recognizable and valuable brand.

11. United Parcel Service, Inc. (NYSE:UPS)

United Parcel Service, Inc. (NYSE:UPS) is another large logistics company that has also managed to build a vast network around the world to rival its competitor FedEx. In order to bring its services closer to customers, United Parcel Service, Inc. (NYSE:UPS) is franchising its stores, with owners offering package delivery and some other shipping-related services, compared with FedEx, which owns its retail outlets and provides a large range of services aside from shipping (like copying and printing). Both FedEx and United Parcel Service, Inc. (NYSE:UPS) are expected to further thrive with the growth of eCommerce, although each may face some competition from Amazon, which is building its own shipping network. The good news is that it’s unlikely that there will be any other major competition, because building logistics networks of matching size requires huge capital investments that don’t make much sense for any company to make given the existing competition.

That concludes our list of 11 companies with a competitive advantage for long-term investors. Obviously there are many others and most of them have a combination of advantages that help them prosper and stay ahead of competition. It’s important to analyze a company’s business model and identify its competitive advantages as well as their sustainability, as it represents one of the main factors that will determine whether or not the company will be able to stay in business and thrive for many years to come.

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