Companies that have an economic moat have a competitive advantage over their rivals. Just as a physical moat protects a castle or fortress from outside threats, a moat around a company insulates it from threats posed by competing firms and economic conditions. While this can be an appealing feature for a company to have, antitrust action may put wide moat companies on your list of stocks to sell.
The phrase was popularized by legendary investor Warren Buffett, who said he looked for stocks of companies that have a moat around them. The wider the moat, the more protected and competitive the company.
However, officials in Washington, D.C. may come to feel the moat around some U.S. companies has gotten too wide. So wide, in fact, that the company has developed a monopoly position in the marketplace.
The administration of President Joe Biden is developing new antitrust rules designed to end several monopolies — notably those in the technology sector — and foster greater competition across the economy. As lawmakers and regulators prepare to rewrite antitrust laws, let’s take a look at seven wide moat stocks to sell before the new rules take effect:
- eBay (NASDAQ:EBAY)
- Walmart (NYSE:WMT)
- BlackRock (NYSE:BLK)
- Kellogg (NYSE:K)
- Costco Wholesale (NASDAQ:COST)
- Facebook (NASDAQ:FB)
- Adobe (NASDAQ:ADBE)
Stocks to Sell: eBay (EBAY)
For a facilitator of consumer-to-consumer and business-to-consumer e-commerce sales, eBay has a pretty wide moat. With 3.5% global market share, eBay is second only to Amazon (NASDAQ:AMZN) when it comes to traffic for online marketplaces. The company is far ahead of third place Rakuten (OTCMKTS:RKUNY), which has 1.5% market share.
The pandemic gave eBay a boost as shoppers turned to its website while brick-and-mortar retailers were closed. In this year’s first quarter, eBay’s advertising revenue rose 58%. This was after the company reported that its ad revenue for all of 2020 totaled $1 billion for the very first time.
The company’s stock has been buoyant this year, up 30% year-to-date (YTD) to $66 a share. EBAY stock has been helped by a share buyback program that will see the company repurchase $5 billion of its own stock, equal to 11% of the company’s $45 billion market capitalization.
With Biden’s antitrust legislation targeting market dominant companies, eBay could end up in the government’s crosshairs. Investors should take their profits now.
Few retailers — or companies, for that matter — can touch Walmart. Founded by Sam Walton in 1962, it is not only the biggest brick-and-mortar retailer in the world, but is also the largest company period. It is the biggest private employer worldwide with 2.3 million employees working at more than 10,000 stores in 24 countries. To say that Walmart is a dominant company is an understatement.
In addition to its vast network of physical stores, Walmart is also becoming a online retail powerhouse, aiming to give Amazon a run for its money. The company’s online sales grew 79% for its fiscal year 2021, which ended on January 29 this year. The company also saw 2020 revenue of more than $550 billion.
To boost its e-commerce strategy further, Walmart is investing $14 billion in 2021 to improve its supply chains and further automate its global operations. This year’s e-commerce investment is 35% more than the $10.3 billion Walmart spent in 2020.
WMT stock is effectively flat YTD at $147 per share. Its share price could end up falling should the company land on the radar of federal antitrust regulators.
Stocks to Sell: BlackRock (BLK)
In the world of investment management, BlackRock casts a big shadow. The New York-based firm started in 1988 had more than $9.5 trillion in assets under management at the end of June this year, and is fast approaching the $10 trillion mark.
A truly global investment company, BlackRock counts clients in more than 100 countries and is today the world’s largest money manager. The company’s recently released Q2 results showed net income rose 14% year-over-year (YOY) as new money continues to pour into its various funds.
With BlackRock, investors can put their money into mutual and exchange traded funds (ETFs) that cover just about everything under the sun. For example, the company has ETFs that track stock indexes to mutual funds that are comprised of sustainable energy stocks.
Company Chairman and CEO Larry Fink is a big proponent of social responsibility, advocating for racial equality and action to lessen climate change. But there’s no hiding the fact that BlackRock is a dominant investment management company and only getting bigger by the day.
Should antitrust busters turn their attention to Wall Street, you can bet their gaze will land on BlackRock and its trillion dollar holdings. BLK stock is up 25% YTD at about $916 per share.
Food company Kellogg is a lot more than just Corn Flakes today. The Battle Creek, Michigan-based company makes and sells a wide range of food products in 180 countries, including Pringles potato chips, Eggo waffles and Cheez-It crackers. The company also sells its popular line of cereals featuring its flagship Corn Flakes, All-Bran, Frosted Flakes and Froot Loops.
With annual revenue of $13.8 billion, 31,000 employees and a 30% share of the global breakfast cereal market, Kellogg is a world leading food manufacturer. The company just reported mixed second quarter results that showed its net sales increased by 3% to $355 million, or $1.11 per share.
Kellogg, which has been in business since 1906, continues to find growth opportunities by acquiring new brands and moving into foreign markets. But K stock has been anemic this year, having risen less than 3% YTD to its current price of $63.86.
While federal regulators aren’t looking specifically at Kellogg, the food giant’s competitive moat is likely to shrink if the new antitrust rules become law.
Stocks to Sell: Costco Wholesale (COST)
In the grocery sector, there’s Costco and then there’s every other company. Today, Costco is the largest global retailer of beef, organic foods and wine. The Seattle, Washington-based company ended fiscal 2020 with revenue of $163 billion.
Costco is in the process of opening its first stores in New Zealand and Sweden as its international expansion and dominance continues. The company’s June sales figures showed 14.1% YOY growth in its same-store sales.
In addition to is brick-and-mortar warehouse outlets, Costco is also beefing up its e-commerce business. Online sales were up more than 20% YOY in June, and that’s on top of 50% e-commerce sales growth in fiscal 2020.
So far this year, COST stock has climbed nearly 17% higher to $441.46 per share. If trust busters want to make an example of a market-leading company that dwarfs its competitors, they need look no further than Costco Wholesale.
Facebook recently won an antitrust case brought against it by the Federal Trade Commission (FTC). However, while the court victory was a big win for the technology sector, chances are that federal regulators are not yet done with the social network.
In June, a federal court judge dismissed the antitrust suit brought against Facebook by the FTC because prosecutors did not effectively define a social network or prove that the social network was a monopoly.
The case’s dismissal was enough to send FB stock past the $1 trillion market capitalization level for the very first time. But it was only one of many anti-competitive legal challenges that Facebook is currently managing. The company remains under scrutiny in the U.S. and is in hot water in Germany, where the government is cracking down on its data collection practices. It may not be long before the FTC or another U.S. government agency takes another run at the company headed by Mark Zuckerberg.
FB stock has risen more than 30% YTD to about $360 a share. With its recent history of antitrust action, it may be time to add Facebook shares to your list of stocks to sell.
Stocks to Sell: Adobe (ADBE)
The software company behind the Portable Document Format (PDF), Photoshop and Adobe Illustrator holds a market leading position. Its many products are used by millions of businesses and individuals around the world.
The company’s subscription model, where customers pay a monthly fee to access its suite of software products, has proven to be highly successful. It has given Adobe some immunity to business and economic cycles.
The San Jose, California-based company’s recent second quarter results showed sales of $3.8 billion, up 23% YOY. Adobe’s operating income rose to $1.4 billion.
The sustained growth and strong results have helped to drive ADBE stock 25% higher this year and more than 500% higher over the past five years. Today, Adobe stock trades at just under $630 per share.
The company is aggressively expanding its analytics business, which provides companies with valuable insights about their business and their competitors. Adobe is the type of market leading technology company that could get caught up in the net of antitrust regulators along with other tech giants.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.