Here at the Motley Fool, we aspire to invest like Warren Buffett – the man behind the Berkshire Hathaway empire.
And it's no wonder considering he managed to deliver a 21.5% average annual return between 1965 and 2005 – doubling the return of the benchmark S&P 500 in that time.
He did not achieve this incredible track record by frequently buying and selling or taking wild guesses on small, speculative companies. Instead, he focused on acquiring shares (and indeed, whole companies) that were trading at reasonable prices.
In particular, he focused on companies which possessed what he liked to refer to as 'moats'. To quote Buffett: "In business, I look for economic castles protected by unbreachable 'moats'". In other words, he looks for strong and resilient corporations which boast sustainable competitive advantages.
Some of the more well known examples include The Coca-Cola Company, American Express and Gillette.
While such globally renowned companies might not be listed on the Australian Stock Exchange, Aussie investors can still buy companies with enormous business moats that would appeal to Buffett. Here are three companies investors could consider today.
Coca-Cola Amatil Ltd (ASX: CCL): While the beverage manufacturer does not own the Coca-Cola brand, it has exclusive rights to distribute the product in various regions around the world. While investors are concerned that a pricing war with rival Schweppes could affect Coca-Cola Amatil's market share moving forward, the smart investors are buying shares now. Buffett purchased shares in The Coca-Cola Company when it was stuck in a similar rut, and it's proven to have been one of his most successful acquisitions. Shares are trading at $9.64 and offer a juicy 4.8% dividend yield.
Carsales.Com Ltd (ASX: CRZ): Carsales.Com is a dominant player in Australia's online car sales market (did the name give it away?). Given that the company's costs are primarily fixed, Carsales' margins will only continue to improve as more and more customers turn towards the popular website to buy and sell vehicles. Further, as more cars are purchased and sold via Carsales, it will become increasingly difficult for competitors to steal market share in the future. With significant growth opportunities both in Australia and overseas, Carsales.Com is presenting as a very attractive buy today.
Greencross Limited (ASX: GXL): Greencross is becoming increasingly dominant in the pet industry as it continues to acquire high-quality veterinary practices as well as pet retail chains. As an example, it recently acquired City Farmers which will strengthen its position in the Western Australian market. Although Greencross isn't a cheap buy today, with shares trading on a projected P/E ratio of roughly 40, strong growth is anticipated in the coming years so now is a solid time to buy.
