FTSE 100 shares are your best shot to building wealth, in my opinion. And I think every active investor’s first job is to beat the market. If you can’t do that, why bother picking stocks?
To achieve this aim I’m buying FTSE 100 shares I think have an unimpeachable advantage over the competition.
Warren Buffett explains exactly why this is important. “If you have a castle in capitalism, people are going to try to capture it“, he said in 2013.
“You need a moat around the castle, and a knight who is trying to widen the moat. Some businesses have very large moats and they have crocodiles and sharks and piranhas swimming around them. Those are the kinds of businesses you want“.
FTSE 100 shares customers
There’s no point wasting your hard-earned money on businesses that can’t protect their market share. That’s why there are no supermarkets in my list.
For example, while Tesco might enjoy a market-leading position today, it has little to protect its competitive advantage from FTSE 100 rivals Morrisons or Sainsbury’s. It may soon be overtaken by faster-growing upstarts like Aldi or Lidl.
I think the following FTSE 100 shares are practically invincible because rivals can’t get anywhere near them. They have products or services that no one else can provide.
I’d look at GlaxoSmithKline (LSE:GSK) as my first practically invincible target. Bosses have ringfenced its healthy 5% dividend yield this year. That shows how stable its earnings are, even in times of wider economic trouble. This yield is also nearly double the FTSE 100 average of 2.74% in 2020. Amazingly, with a price-to-earnings ratio of 12.8, the business is still undervalued, too.
GSK’s legally protected intellectual property means it has a serious economic moat to defend its
competitive advantage from erosion. Its stable of leading global treatments keeps growing week on week. For example, we heard recently that its cabotegravir HIV prevention medicine is 66% more effective than competitor Gilead’s offering.
As well as patenting protected drugs and brands only it can sell, its advantage is underlined by its Covid-19 response. GSK is nearing a £500m deal for a coronavirus vaccine according to The Sunday Times. Ministers can’t and won’t trust tiny biotechs to deliver, but this huge and well-regarded pharmaceutical giant?
Next on my list of practically invincible FTSE 100 shares is British American Tobacco (LSE:BATS).
Its gross margins of 82% — a measure of high profitability — are some of the very best in the UK simply because of its vast range of protected brands. That confirmed £2.10p per share dividend, makes for a hefty 7.3% yield on your investment at this share price. And bosses are moving this dividend payment up to £2.17 next year and £2.31 the year after.
The future also looks seriously bright for BATS. Especially when compared with the uncertainties facing so many other FTSE 100 shares. The forward P/E ratio in 8.6, which indicates that earnings are expected to be higher next year than this year. Earnings per share are slated to grow 4% by the end of 2020 and 6% by the end of 2021.
This is a healthy reminder to invest in strength if you want to keep and grow your wealth.
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Tom Rodgers has no position in the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.