When it comes to seeking out companies with a strong competitive advantage, where should one begin? One approach is to examine a company’s return on equity (ROE), which represents the earnings generated per dollar of equity capital. While not foolproof, this metric allows investors to compare the potential of different companies, regardless of the industry they operate in. Jensen Investment Management, a reputable firm renowned for its focus on high-quality investments, applies a screening process that identifies companies maintaining a minimum 15% ROE consistently over ten years.
Though challenging, achieving a 15% ROE is certainly feasible. Within the S&P 500 (^GSPC) and Nasdaq-100 (^NDX), a combined total of 79 companies meet this criterion. Among these notable entities are tech giants like Apple Inc. (AAPL), which needs no introduction. Additionally, well-known discount retailers like Costco Wholesale Corp. (COST) and Target Corp. (TGT) make the list, highlighting their strong performance in the market. Furthermore, renowned apparel manufacturer Nike Inc. (NKE) is recognized for consistently delivering impressive results.
It is evident that these companies possess a formidable moat, offering them a competitive edge in the marketplace. By examining their robust ROE over time, investors can gauge the potential for sustainable success within various industries.
