Warren Buffett is almost universally renown as the GOAT (Greatest Of All Time) of investing. His company Berkshire Hathaway Inc. is a phenomenal success story – one share of Berkshire Hathaway was worth US $260 in 1980 but today this same single share will set you back US $322,900!
Warren Buffett has a unique 'kind' of company he likes to invest in, which he describes as possessing an intrinsic competitive advantage or 'moat' – something unique about the company that keeps customers coming back for more. One of the best examples of a 'moat' company is Apple Inc. Even though iPhones and Macs are some of the most expensive electronics money can buy, they remain hugely popular and people who use iPhones often won't touch a rival phone brand. And yes, Warren Buffett is a significant shareholder of Apple.
So what companies on the ASX would Warren Buffett take an interest in, based on his fondness of a 'moat'? Here are two possibilities:
Coca-Cola Amatil Ltd (ASX: CCL)
The Australian 'branch' of the US Coca-Cola Company, Coca-Cola Amatil is responsible for the bottling and sales of Coca-Cola products in Australia and the Asia-Pacific region. Have you ever wondered why Coke is the most popular cola drink despite also being the most expensive? It's because of its brand 'moat' – everyone knows what they are going to get with a Coke. Warren Buffett also knows, and Coca-Cola remains one of Mr Buffett's largest positions. Although Coca-Cola Amatil has struggled with a changing market in recent years, there's no doubting Coca-Cola's enduring brand power with names like Sprite, Fanta, Mother, Powerade and Mount Franklin. Buffett himself has said that he will "never, ever sell a share of Coke" – who am I to argue?
InvoCare Ltd (ASX: IVC)
InvoCare is Australia's largest provider of funeral services. Although a darker industry than soft-drinks, InvoCare has also demonstrated an ability to maintain a unique competitive advantage, and so fills Buffett's 'moat' test. Death is, unfortunately, one of the few certainties in this world and someone has to cater to our end-of-life needs.
InvoCare performs this role well by offering multiple, recognisable brands to cater for differing requirements and needs in the funeral services industry. InvoCare has captured market share very effectively and continues to expand with little competition. I think this company is a business Mr Buffett would admire due to these characteristics and its (unfortunately) enduring earnings base.
Foolish Takeaway
I think both of these ASX companies demonstrate the kind of 'moat' Warren Buffett looks for in a business. As he already owns a large chunk of Coca-Cola, this one is more of a certainty, but InvoCare is also a quality business and one which (I think) fills the 'Buffett test' as well.
