Morningstar Wide Moat 50+ Stocks (2025.08) Verify technicals strengths, buy sell confidently

What Is Wide Moat Stock?

A "wide moat" stock is a company with strong advantages, as determined by Morningstar, an independent research firm. Competitive advantages help a company stay ahead of competitors for a long time. These advantages could be a strong brand, loyal customers, or being the best at what it does. It's like a castle with a big economic moat that keeps enemies away.

If a company is expected to keep this edge for over 20 years, Morningstar rates it as having a wide economic moat. If its advantage might last about 10-20 years, it’s a narrow moat. And if the company doesn’t have much of an edge, it’s considered to have no moat.

Investors look for companies with wide or narrow moats. These firms tend to earn steady profits over time. Morningstar gives companies “moat” ratings. This helps investors find strong, competitive businesses easily.

Without a moat for protection, competitors may easily take away profits. In other words, the competition is eating its lunch.

In short, a wide moat stock is like a fortress — it’s built to stand strong for years!

For more details, please refer to this PDF on Morningstar's methods.

The main benefit for a rating system...

Is that you can quickly understand if a stock is worthwhile in your portfolio, month after month. In other words, a small fee for someone to do the homework for you.

This guide covers:

• Why wide moat stock matters

• Who decides if a stock has wide moat

• When to use wide moat stocks

• Actual performance of wide moats stocks

• How to trade wide moat stocks

Why Is Wide Moat Stock Important?

Morningstar's list of wide moat stocks is a quick way to find top stock ideas with strong fundamentals.

To quote the Oracle of Omaha (Warren Buffett):

Saves You Time

According to Benzinga, there are approximately 6,000 stocks in the U.S.

Morningstar has an army of fundamental research analysts pouring through company financial statements. Their mission is to find out which company has economic moats.

If you are a firm believer in fundamental analysis, then a stock with wide economic moat is the holy grail you are chasing after. Yet, it is impossible to review every company yourself.

Using Morningstar's list may save you some time.

Our Brain Loves Lists

Lists are our way of making sense of the many things around us. This BBC article listed out 9 reasons why we love lists. We have a natural attraction to lists. We process lists with efficiency, and recall with ease.

With the ability to screen, sort and analyze stock opportunities on the list, our brain is in a happy place.

This may be why we believe a list of wide moat stocks helps us make investment decisions with confidence.

Great Minds Think Alike

When making an important decision, we'd like someone to reaffirm our thinking. If we think a stock is great and is also on the wide moat stock list, we know what to do next.

Confirmation bias is when people focus more on information that they already believe. The downside is ignoring information that is against their prior beliefs.

Not finding your favorite stock on the wide moat list, you may feel angry. Yet, a company's fortunes may change from time to time. Having a reality check from Morningstar's analysts could be a wake-up call.

Independent Advice

When a large Wall Street firm has a "buy" rating on a stock, shouldn't we all jump in?

Not so fast...

As for butter versus margarine, I trust cows more than chemists.

Sell side analysts may benefit or indirectly earn a fee from the company they are promoting.

Morningstar is an independent research company, which means they get paid by you only if the advice works.

Who Decides If A Stock Has Wide Moat?

Morningstar's wide moat rating is based on a set of rules, consisting quantitative and qualitative factors. The process is designed to suss out companies with strong, long-lasting competitive advantages.

Read on to find out exactly how...

Economic Moat Checklist

On qualitative factors, here are the 5 sources of economic moats:

1. Switching Costs: Money, effort, or time are key reasons that prevent customers from switching to a competitor.

   • This is why companies make you sign a contract for 1-3 years. We all tried to cancel subscriptions before; they make you jump through hoops.

     
     

2. Network Effect: A service becomes more valuable as more people use it.

   • Facebook is a good example of network effect. When you post a picture, for better or worse, all your friends see it.

     
     

3. Intangible Assets: Patents, regulatory licenses, and brand identity can prevent competitors from copying products.

   • "Think Different" — what comes to mind? Most people will remember Apple. It is marketing an identity, not product features.

     
     

4. Cost Advantage: A company that can produce goods or services at a lower cost, undercutting the competition or improving profitability.

   • Walmart, Costco, Ikea — we can all name a few.

     
     

5. Efficient Scale: Companies in a niche market that only supports a few competitors.

   • Utilities, airport and telecom providers are the usual suspects on the list. Some will also argue for TSMC in semiconductor manufacturing.

The Human Factor

When Morningstar initiates coverage on a stock, it is assigned to an equity analyst.

An analyst typically studies 5-15 companies within their sector or geographic regions. Analysts become experts in the companies or sector they analyze.

Earnings seasons are usually the busiest for analysts. They jump on "earnings calls" with company management for direction and "guidance" on revenue growth and profit margins. This information helps research analysts project future expected cashflow for these companies.

The Quant Factor

The main job of an analyst is to come up with a price target, or "fair value" for Morningstar analysts. Fair value is what an analyst thinks the stock price is worth based on fundamental analysis.

Morningstar uses a proprietary valuation model to calculate fair values. The model predicts the company's future expected cashflow. It is then discounted using the average cost of capital to calculate a company's value today. After deducting the debt value, the analyst derives the stock's fair value. To quantify a company's competitive advantage (or economic moat), Morningstar also looks at historical and projected returns on invested capital relative to cost of capital.

Committee Approval As Wide Moat

At Morningstar, analysts must present wide moat recommendations to an expert committee. This committee, consisting of senior equity researchers, reviews and approves these recommendations. Only companies with one or more competitive advantages qualify as wide moat companies.

When To Use Wide Moat Stocks

In short, when the headlines are SCARY.

Fundamental analysis is considered an art... in pickling ugly ducklings. In other words, when the stock price hits rock bottom.

To capture this opportunity, Morningstar also rate stocks from 1-star (expensive) to 5-stars (a great deal) to help you act decisively.

5-star stock is a way of saying that a stock might be a really good deal. If a stock gets 5 stars, it means it's selling for a much lower price than Morningstar's experts think it's actually worth. This could be a sign that it's a good time to buy that stock.

Visit our guide to learn more about 5-star stocks.

Actual Performance Of Wide Moat Stocks

In real live trading, how did Morningstar's 5-star wide moat stocks perform?

Did it beat the market? (more on that later)

Let's look at an ETF that replicates the Morningstar Wide Moat Focus Index.

The VanEck Morningstar Wide Moat ETF (Ticker: MOAT).

This ETF invests in US stocks that are:

1. Wide Moat: Has wide competitive advantages, as determined by Morningstar.

2. 5-Star Stocks: Trading at the lowest current market price / fair value.

Compare with S&P 500 Index

Here are the results of the VanEck Morningstar Wide Moat ETF compared against the S&P 500 index.

If you parked $10,000 in MOAT since early 2012, your capital will increase to $50,361 after 12.9 years. Net profit is 403.6% vs. 302.5% from S&P 500 index (.SPX). That is very impressive considering MOAT's returns are:

1. After transaction fees to buy / sell stocks.

2. After management fees (expense ratio of 0.47%).

From an annual return view, MOAT on average returned 13.4% per year, while S&P 500 was 11.4%. MOAT's return was achieved with similar volatility to the S&P 500, with also similar max drawdown levels.

Compare with S&P 500 Equal Weighted Index

Morningstar's MOAT ETF invests in stocks on an equal weighted basis. This means each stock's position is similar. The S&P 500 index is weighted by market cap size, thus dominated by the Magnificent 7 stocks.

To be fair, we also compared MOAT against the equal weighted version of the S&P 500 index (.SPXEW). The equal weighted S&P 500 index is shared evenly by about 500 stocks, while MOAT has about 40-80 stocks. Let's take a look at the results:

Net profit is 403.6% vs. 234.7% from .SPXEW, that is even more impressive. On average MOAT returned 13.4% per year, while .SPXEW was 9.8%.

Risk Adjusted Returns

If we want to also factor in risk into return, we can compare their Sharpe Ratio. MOAT is about 38.5% more effective than the S&P 500 Equal Weighted Index (0.72 vs 0.52).

Field Testing in a Bear Market

Let's also look at a bear market to stress-test the 5-star wide moat stocks.

During the 2019-2020 pandemic, MOAT initially was in sync with the market. In the second half of 2020, the S&P 500 index outperformed MOAT. In the same period, MOAT performed better than the equal weighted (.SPXEW) index.

Is this Smart Beta?

The ETF results from 5-star wide moat stocks appear to be more effective than the empirical studies. The 5-star wide moat stock system has merits by this measure. MOAT has a Beta of 1.05 against the S&P 500 index. The Beta explains why it performs better in bull markets and worse in bear markets.

How To Trade Wide Moat Stocks

Here, we will now unveil the exact process Morningstar uses to beat the market. Specifically, how to select stocks to add to its portfolio from the wide moat stock list.

Stock Selection: Survival of the Fittest

Step 1: Currently, Morningstar covers 11 industry sectors. Morningstar starts with all the listed stocks for which it has research coverage. This means Morningstar has a view on both economic moat rating and fair value for these stocks.

Step 2: Next, Morningstar keeps 97% of the largest market cap stocks, filtering out the smallest 3%.

Step 3: Morningstar plans to keep at least 40 stocks in its wide moat portfolio. To do so, it looks at 60 stocks, which is 150% of its target stock count. Each stock has an equal weight in the portfolio.

Step 4: This list is further limited by max sector weight, where no sector should be more than 40% of the portfolio.

Step 5: The portfolio has a preference for 5-star stocks. Meaning, only the lowest current market price / fair value stocks will make it to the wide moat portfolio.

Buying and Selling

Buying or selling decisions depend on whether the stock remains a 5-star stock or not. The primary ranking factor is [lowest current market price / fair value]. That means the deeper discount stocks remain. Conversely, fair value (3-star) and premium stocks (1 and 2-star) will leave the portfolio.

How Often Does Trading Happen?

Less than you think...

With the list of stocks in hand, Morningstar begins with 2 identical pockets to hold the same stocks. The 2 pockets (let's call them Pocket A and Pocket B) have equal weight (50% each).

Every 3 months, Morningstar takes out a pocket to go through the stock selection process. By alternating the 2 pockets for review, each Pocket A and Pocket B actually holds stocks for at least 6 months. If a stock remains good value (discount to fair value), then it remains in the portfolio longer than 6 months.

For example:

• Pocket A: Review in March and September.

• Pocket B: Review in June and December.

In each June and December, Morningstar will reset the 2 pocket's value back to 50% each. This is done by pro rata the stock's position in each pocket.

Lastly, since the 2 pockets are staggeredly reviewed, the combined portfolio can have more than 40 stocks. Usually, about 50-55 stocks, at most theoretically 80 stocks.

Sounds Complicated... How to Simplify?

I hope the above review gives you an idea of how Morningstar trades wide moat stocks. I agree it is impossible to replicate as a DIY on your own. But, I hope Morningstar's method inspires you to improve your investing process.

Set up a regular schedule to review your stocks. Have a consistent and quantitative way to rank your stocks from best to worst. Automate your process to avoid being a drag on your life.

Here are some hacks to help you use wide moat stocks effectively:

1. Invest in the VanEck Morningstar Wide Moat ETF (Ticker: MOAT).

2. Get the 5-star wide moat stock names from this dashboard. These are the actual stocks invested in the MOAT ETF.

3. Pairing the 5-star stocks with technical analysis. We added technical strength to the 5-star wide moat stocks.

   
   

To be a better investor, leverage on technical analysis for a more complete view. See section below for further tips on how to use this dashboard effectively.