Companies with Wide Economic Moats

	Paul Tracy Street Authority.com
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Every year shareholders of Berkshire Hathaway (BRKa) receive a special chairman's letter from the firm's CEO, investing legend Warren Buffett. For those of you unfamiliar with him (and there probably aren't many of you out there), Warren Buffett is the most successful and widely recognized value investor in modern stock market history.

And there's good reason for that fame. According to the Forbes list of wealthiest people, Warren Buffett is the second-richest man in the world with a total net worth in excess of $40 billion. Even more importantly, he is one of only a handful of names on that list to attain virtually his entire wealth via investments in the stock market.

With this as a backdrop, you probably shouldn't be too surprised to learn that entire books have been written in an effort to glean every bit of investment wisdom possible from Buffett's annual shareholder letters. In particular, one concept that resurfaces time and time again in these letters is that of economic moats. In his annual letters, Buffett makes frequent references to the size of the "moat" surrounding particular companies.

But what exactly is a "moat"?

Imagine a medieval castle. Castles were traditionally part city and part defensive fortress. Constant warfare in the Middle Ages meant that cities were almost continually under siege from surrounding states.

The moat was a key part of this defense -- by surrounding the castle with water, castle builders were able to make their fortress more difficult to penetrate. A wide and deep moat would slow down aggressors and make it tough for them to scale the castle walls. The wider the moat, the more difficult it would be to attack a castle's defenders.

In today's highly competitive modern economy, companies are not unlike medieval castles. A successful company that manages to earn sizable profits will undoubtedly attract competitors. After all, it's only natural for companies to try to emulate success by copying their most profitable competitors. If those competitors are successful in gaining market share, then they'll erode the profitability of the original business.

So how do companies avoid that sort of economic siege?

The most successful firms are those that boast some sort of sustainable competitive advantage -- an advantage that's difficult to copy or emulate. These firms are able to maintain their success despite the inevitable attacks from competitors. This is what's meant by an economic moat. Companies with wide economic moats operate business models that are difficult -- or in some cases even impossible -- for competitors to attack or emulate.

Types of Moats
There are several ways of establishing a wide economic moat. In some cases, companies can establish a cost leadership position within an industry. If a firm is able to produce products more cheaply than any other firm, then they can undercut the competition and drive their rivals out of business.

Wal-Mart (WMT) provides us with a perfect example of low cost leadership in action. The world's largest retailer boasts a size and scale advantage that's difficult to emulate. The company controls so much retail space that it's able to demand the lowest possible prices from suppliers. In fact, sometimes Wal-Mart sells products to consumers at prices that are less than what's available to other retailers at the wholesale level. To some extent, Wal-Mart has been able to leverage that same advantage when entering foreign markets. Because it would take decades of successful expansion for any firm to be able to match Wal-Mart's tremendous size and scale, the company enjoys a sustainable advantage over its competition. In other words, it has a wide moat.

As our chart shows, Wal-Mart's wide moat has helped the stock outperform the S&P 500 by a sizable margin over the past 20 years. For example, a $10,000 investment in Wal-Mart back in 1985, when the company was already well known, would have ballooned to a value of nearly $500,000 by 2005. By comparison, the same cash invested in the S&P 500 would now be worth less than $50,000.

Companies have had varied success in dealing with Wal-Mart's cost advantage. Those that have attacked the company directly by trying to compete on price alone -- grocery store chains like WinnDixie (WNDXQ.PK) spring to mind -- have fallen by the wayside. Other companies like Whole Foods (WFMI) and even Target (TGT) have adapted by targeting a more upscale clientele -- they've decided (wisely so) not to compete head-to-head with Wal-Mart. As such, Wal-Mart has retained its cost advantage in the low-end retail space throughout the last several decades.

Another common moat involves a company's brand name and image. Consumers will continually reach for their favorite brands, paying a premium price even if there are several cheaper generic equivalents on the market. A classic example is Coca-Cola (KO). Although Coke's ingredient formula is widely known in the beverage industry and can be easily reproduced, Coke still manages to charge 20% to 30% more per can when compared to generic store brands. The reason: Consumers identify with Coke and continually purchase their favorite brand. Coke's powerful brand has made the stock one of the market's best performers over the long haul.

The Dangers of Narrow Moats
Of course, most companies don't enjoy the same wide moats that have helped Wal-Mart and Coke dominate their respective industries. That doesn't mean that these firms can't be profitable and deliver decent returns for investors; a narrow moat does make it difficult, however, to sustain above-average profitability in the face of competition.

High-flying stocks with narrow economic moats are dangerous indeed. These firms can show tremendous growth for a period of time -- growth that prompts investors to jump aboard. Inevitably, however, competitors cross that narrow moat and attack the castle's advantage, eroding profitability.

One classic example of the danger of a narrow-moat firm is that of Palm handheld computers. Back in the late 1990s this firm's personal digital assistants (PDAs) took the market by storm. The firm's Palm Pilot line of handhelds were bestsellers back in 1998 and 1999, and shortly afterwards parent company 3Com decided to spin off its Palm unit to a jubilant public.

Palm was initially very well received -- revenue growth was strong as the Palm Pilot remained the nation's best-selling handheld. The stock was valued in the tens of billions.

But by 2001 several major competitors had entered into this market. For example, Hewlett-Packard (HPQ) introduced a new line of handhelds, as did Sony (SNE) and Research in Motion (RIMM). Later, mobile phone companies like Nokia (NOK) and Ericsson (ERICY) began integrating PDA-like elements into their handsets. The result: Palm's product quickly became a commodity, and the firm's growth soon evaporated.

Nowadays, Palm has split into two companies -- PalmSource and PalmOne. However, these two firms are now worth less than $1 billion combined. That represents a value of about 3% of the former highflying stock's peak valuation back in early 2000.

COMPANIES WITH WIDE ECONOMIC MOATS
With the above analysis as a backdrop, my staff and I recently went on a search for companies with wide economic moats. In doing so, we managed to hone in on nearly a number of firms with unusually large competitive advantages. Although the exact source of their wide moats varies dramatically from firm to firm, all of these companies have the potential to keep their competitors at bay over the long haul. As a result, each and every one of these stocks should continue to perform well throughout both good times and bad.

Moody's (MCO, $82.14)
Moody's provides credit ratings as well as the analysis of credit and debt securities. The company also sells software and products that assist banks in establishing and analyzing their customers' credit. Most investors will recognize this company's widely-reported ratings system for bonds. Companies that receive the highest rating are rated Aaa, the second highest are rated Aa1, etc... Moody's has developed a total of 21 ratings to assist in the market in understanding the relative financial strength of different companies.

Thanks to the fact that the credit ratings market is heavily regulated by the federal government, Moody's enjoys a wide economic moat. The Securities and Exchange Commission has established rules and criteria that limit the competition in this market to just a handful of firms: Moody's, Standard & Poor's, Fitch and the Dominion Bond Rating Service. Moody's and S&P are by far the larger competitors in this group with a combined 80% market share. It would be extremely difficult for another firm to enter this market, and it's unclear if the government would even allow another competitor.

Even better, the market has further reinforced the company's moat. Many loan covenants require borrowers to maintain a certain credit rating from Moody's. And many professional money managers are only allowed to invest in bonds that are rated of a certain quality by Moody's. As a result, these companies simply must give their ratings business to Moody's in order to avoid defaulting on their loans or getting shut out of institutional investment. This provides the firm with a steady source of demand for new credit ratings.

Growth overseas is also pushing Moody's growth. In recent years, smaller European and Asian companies have entered into the market with high-yield bond issues. To attract investment from major institutional players these firms need to receive a rating from Moody's. And going forward, this trend should continue in future as foreign firms increasingly turn to the capital markets to garner funding.

As of right now, the government has no plans to change its policy towards Moody's and the other credit rating agencies. In addition, any changes would likely take years to enact, and any new competitors would likely be a fraction of Moody's size. Thanks to this enormous economic moat, Moody's should be able to sustain above-average growth of +15.0% over the long haul.

First American Financial (FAF, $35.80)
First American Financial operates two main business lines. The company offers real estate title insurance, which is insurance that guarantees a free and clear title to real property. Most lenders require this insurance prior to disbursing funds.

First American also maintains an enormous consumer credit information database. Essentially, that involves collecting data on consumers' credit histories -- what credit cards the consumer uses, how large their balances are and their history in paying bills in a timely fashion. Lenders need that type of valuable information in order to determine if a potential borrower represents a good credit risk.

Because state regulators control the pricing of title insurance, there is little potential for increased competition in this business. With this in mind, it's almost impossible for companies to compete on price -- this part of the business is protected by government regulation, giving FAF a wide economic moat.

On the credit information front, meanwhile, FAF's tremendous size and extensive database of consumer information provides the firm with yet another wide economic moat. First American compiled the credit information in its database over many years and from a variety of sources. While much or all of that data would be available to an upstart firm, the upfront cost of capturing data from public records, credit card companies and banks over many years for millions of consumers would be staggering. In order to recoup the start-up costs associated with the development of such a database, a new entrant in this market would likely have to charge much higher prices. As a result, FAF has extensive intellectual property that would be very hard for a new competitor to duplicate.

Even better, since FAF has already spent the money to compile it database, the marginal costs associated with searching a particular consumer's credit history are minimal. As a result, each incremental consumer search adds to revenues but has a negligible effect on costs.

In order to offer the very best possible loan rates to consumers while not exposing themselves to excessive risk, banks must carefully examine credit information. With one of the most complete consumer databases in the country, that spells stable demand for FAF's database. The stock's long-term growth rate of +12.0% looks solid.

Anheuser Busch (BUD, $46.87)
Anheuser Busch benefits from one of the most widely recognized brand names on the planet -- Budweiser. The company manufactures, markets and sells beer in over 30 different countries. The firm not only sells its recognized global brands -- Budweiser, Bud Light and Busch -- but also owns a variety of local brand names that are sold exclusively in certain countries.

Budweiser's wide economic moat is a direct result of the company's powerful brand and enormous size. BUD was founded over 140 years ago. As a result, Budweiser has been well known to most American consumers for decades. However, Budweiser has never allowed its brand to become stale -- the company spent more than $2.5 billion marketing its products worldwide in 2004 alone, more than double its nearest competitor in the beer market. Budweiser can afford to spend that sort of cash thanks to its enormous size -- BUD's annual sales exceed $15 billion. The company's constant marketing efforts help to reinforce its brand image in consumers' minds. This high-quality, well-recognized brand gives the firm a lasting economic moat.

In our introduction, we discussed how Wal-Mart has been able to leverage its size to demand the very best prices and service from suppliers. For BUD, size also has its privileges. The company demands exclusivity from 60% of its distributors -- meaning that the distributors are only allowed to sell BUD products. This gives BUD a lock-hold on its distribution network, providing the firm with yet another wide economic moat.

BUD has proven its ability to generate new products and marketing campaigns that breathe new life into U.S. sales. Going forward, however, the bulk of the firm's growth will come from overseas. In particular, BUD has aggressively targeted the fast-growing Chinese market. In China, consumers are rapidly becoming wealthier and better able to afford luxury products like alcohol. And young working adults are exactly the demographic that BUD traditionally targets with its core brands. Last year, BUD bought Harbin, a Chinese company with 18 breweries in northeast China; this is likely the beginning of an even more aggressive push into Asia. With all of these factors in mind, we believe BUD will deliver above-average returns for shareholders over the long haul.

eBay (EBAY, $31.71)
eBay owns and operates an online auction marketplace -- a virtual flea market. On its website, eBay users can list items for sale, complete with a picture and descriptive text. Consumers then bid on these products in an auction-style format; the winning bidder gets to buy the item. eBay does not actually hold any inventories of goods, nor does it pay for the shipping or handling of those goods -- these tasks are performed by individual sellers. Instead, eBay makes money by charging a listing fee to the sellers as well as additional fees for more prominent placement of their product on the firm's website.

eBay's derives its wide economic moat from something that is often referred to as a "network effect." The company is able to outmuscle its rivals thanks to the tremendous size and scale of its website platform. Consumers often flock to eBay.com because there are so many different items available at any given time for sale there. In other words, thanks to its more than 41 million active, registered users, eBay offers the broadest selection of new and used goods on the Internet. Meanwhile, sellers flock to eBay because the firm offers the largest number of potential buyers for their goods.

Simply put, the larger the auction network, the better. It would be tough for another company to set up an auction website to compete with eBay. Although it would be relatively cheap to set up a site and platform, it would be nearly impossible for a new entrant to attract a user base as large as eBay's.

eBay's growth in the U.S. has been slowing from the heady pace of a few years ago. However, the company still has plenty of expansion opportunities abroad. EBay already boasts country specific websites throughout most European countries, as well as in high-growth markets like Hong Kong, China, Argentina and Mexico. The online auction marketplace in most of these nations is still less developed than in the U.S. As such, the firm's overseas growth opportunities look impressive.

The firm's online payment service, PayPal, is also important to the firm's future growth. EBay acquired the company a few years ago and has widely integrated the system into its own auction website. Increasingly, PayPal is being offered as a payment option on all sorts of websites -- in some areas you can even pay your utility bills securely online with PayPal. Online transactions are growing rapidly and a secure payment method is a must; PayPal has captured a nice share of this growing market.

The bottom line - thanks to its enormous network of buyers and sellers, eBay is likely to remain the dominant online auction player for years to come. As a result, we believe the stock will continue to deliver above-average gains going forward.

Teva Pharmaceutical Industries (TEVA, $31.24)
Teva Pharmaceuticals is one of the world's largest generic drug companies. As well all know, new drugs are protected by patents for a number of years. When those patents expire, the drugs become subject to generic competition -- other companies can file with the Food & Drug Administration (FDA) to produce copycat drugs. Patent-protected drugs are like monopolies -- these drugs normally sell at high prices, enabling drug companies to recoup the huge costs associated with research and development (R&D). Generic drugs, once introduced, typically sell at a fraction of the cost.

However, the generic drug business is a lot more complex than it might first appear. Producing a new generic drug involves a lot more than simply copying a drug that is coming off patent. Generic firms must file their generic drugs with the FDA and receive approval. In order to receive approval, the generic drugmaker must prove that its generic version is identical to the original patent-protected drug. In addition, it must convince the FDA that its manufacturing operations are sterile and well-run. This process can take months or even years.

In addition, the first generic drug to be approved by the FDA wins a sort of mini-patent. Specifically, the first filers enjoy a 180-day exclusivity period for their generic version of the drug. During this period, the generic firm isn't subject to competition and can charge higher prices for the drug.

With this in mind, Teva's size and global scale provide the company with an enormous economic moat. The company employs an army of researchers and owns some of the most advanced drug production facilities in the industry. As a result, Teva can move quickly when filing generic drug approvals with the FDA. Because of this, Teva has been able to win a large number of 180-day exclusivity periods; the company is often the first to file for generic approval. During these 180-day periods, Teva enjoys the widest moat of all -- it's illegal for other companies to compete.

Even better, Teva is one of the world's largest manufacturers of pharmaceutical ingredients -- various chemicals used as part of the drug manufacturing process. This gives the company cheap access to necessary compounds. This not only helps Teva to develop generic drugs more quickly, but it also helps lower the firm's cost structure. Keeping costs low is key to profitability in the competitive generic business.

Always in search of additional economic moats, Teva has also expanded outside the generic business in recent years. For example, the company now makes Copaxone, a branded drug for the treatment of multiple sclerosis. Copaxone has become a very important product for Teva, as it has quickly become a world leader in the treatment of this disease. In addition to Copaxone, Teva recently developed a drug to treat Parkinson's disease called Rasagiline. These two drugs are protected by long-term patents, providing Teva with yet another wide economic moat.

TEVA's branded drugs are growing quickly as they become more widely prescribed. Both Multiple Sclerosis and Parkinson's are major diseases that require long-term treatment; that spells long-term demand for these drugs. Demographics are also pushing growth in the drug business -- as America and most other western nations age, drug consumption will continue to rise. As a result of these and other factors, Teva should deliver impressive financial results in the years ahead.

Chicago Mercantile Exchange (CME, $195.52)
The Chicago Mercantile Exchange is the dominant futures and derivatives trading exchange in the U.S., as well as one of the largest exchanges in the world. CME specializes in the trading of stock market and interest rate futures and options.

The company makes money based on the volume of transactions processed. For every buy or sell order handled by the exchange, CME receives a small fee. The higher the volume, the more fees the firm collects.

Like eBay, CME has used the network effect to widen its economic moat. Traders are attracted to volume because higher volume means better liquidity and, in turn, better execution prices. It would be extremely difficult for an upstart exchange to attract the sort of volume the CME attracts.

Even better, the company has a lock-hold on the trading of certain contracts, such as the high-volume S&P 500 futures. Standard & Poor's licenses this index to CME. That gives the exchange the exclusive right to trade derivative products based on the firm's index. Since most money managers benchmark against the S&P 500, futures and options based on the index are extremely popular hedging tools. CME faces little competition in this market, giving the firm a wide economic moat.

As for future growth, the company's all-electronic GLOBEX platform has delivered strong gains in recent years, and now accounts for the majority of the firm's trading volume. Even better yet, this electronic exchange also offers higher profit margins for CME. In the most recent quarter, GLOBEX saw volumes grow nearly +100%. These higher-margin trades should help CME to post stellar gains for shareholders in the years to come.

Electronic Arts (ERTS, $53.39)
Electronic Arts is the world's leading videogame software maker. The company owns some of the world's most popular gaming titles, including the Final Fantasy franchise and a series of games based on World War II battles. And once the company develops a popular franchise, the gains to earnings are far from a one-off event -- Electronic Arts usually publishes sequel titles that generate millions in additional revenue from its existing loyal fan base.

ERTS enjoys a wide economic moat thanks to the strength of its video game franchises. Gamers continually purchase certain titles and sequels of games that ERTS produces. Because these titles are copyrighted, ERTS has exclusive rights to distribute and sell them. This list would certainly include long-running franchises like Final Fantasy.

In addition, the company benefits from deals to create sports games based on NFL and other professional sports teams. Thanks to exclusive deals with the NFL, ESPN and others, Electronic Arts has garnered a virtual lock-hold on the valuable sports videogame market. And the enduring popularity of sports, and football in particular, virtually assures a line of popular future titles.

But the firm's wide economic moat doesn't end there. Thanks to its large size and army of experienced game developers, ERTS tends to attract some of the industry's best game developers. And because of the company's quality brand name and distribution scale, the firm is a logical partner for groups like the NFL that wish to profit from the videogame business. As such, we see little chance that ERTS will lose its exclusive rights to use the NFL name.

As for growth, the videogame market continues to grow rapidly. That's particularly true in Asia; the young are traditionally the biggest gamers, and Asia boasts an enormous young population. Electronic Arts has been at the forefront of the industry's Asian expansion and has already opened a store to showcase its games in China. These expansion efforts, when combined with the firm's quality brand name and exclusive sports game franchises, should enable ERTS to maintain its dominant position in the videogame market for the foreseeable future.

Genentech (DNA, $70.94)
One of the world's leading biotechnology companies, Genentech has several major blockbuster drugs on the market. One of the most promising of these is the firm's new cancer treatment, Avastin. Avastin, which works by cutting off the blood supply to tumor cells, has delivered over $700 million in sales since the drug was approved for the treatment of colon cancer back in February 2004. Even better yet, a variety of recent clinical findings could eventually pave the way for the drug's approval for the treatment of breast and lung cancer. If that ultimately happens, then broader use of the drug would undoubtedly lead to higher sales and profits for Genentech. In fact, some analysts have even gone so far as to predict that Avastin sales will surpass $6 billion annually by the end of the decade.

In addition to Avastin, Genentech's portfolio is filled with a number of other high-quality, patented drugs. For example, Tarceva has been approved to treat lung cancer that hasn't responded to traditional chemotherapy. In addition, DNA sells Rituxan and Herceptin, which are used to treat lymphoma and breast cancer, respectively.

As with most pharmaceutical companies, biotech firms' drugs are protected by long-term patents that last for several years. Since these patents protect companies like DNA from competition, they represent one of the strongest forms of economic moats.

Genentech is in the enviable position of having a stable of relatively young blockbuster drugs. In other words, DNA does not have to worry about patent expirations for several years, as many of its drugs have just recently been approved for sale.

On the growth front, it's likely that drugs like Avastin and Tarceva could see what's known as label expansion. In other words, both drugs have been approved to treat very specific cancers; Tarceva has only been approved to treat cancer as a second-line attack, after other drugs have failed. As we noted earlier, the company is seeking to have these drugs approved as treatments for other forms of cancer and as first-line treatments. By expanding the label of approved uses, DNA should be able to boost sales of both drugs.

Genentech is firing on all cylinders right now -- the company's recent clinical results have been extremely positive, its patented drugs provide it with a wide economic moat, and the firm's future outlook remains as strong as ever. As a result, the stock should deliver impressive gains in the months and years ahead.

First Data (FDC, $38.03)
First Data is one of the world's leading providers of credit, money transfer and electronic payment processing services. In addition, the company is perhaps best known for its Western Union money transfer service, which is available in hundreds of countries worldwide. In addition, the firm offers equipment that enables merchants to accept and process Visa and MasterCard credit cards.

With a 75% share of the global money transfer business, Western Union is the company's most valuable franchise. Because the firm's Western Union network is so large, dominant and available globally, the franchise has a huge networking advantage. Western Union is convenient and accessible to almost all consumers, giving the company a wide economic moat. This also makes businesses want to sign up as Western Union agents (as opposed to signing with competing networks).

What's more, because the company's network is so large and efficient, the costs associated with each new transfer transaction are very low. As a result, each incremental customer adds directly to the firm's bottom line.

First Data also uses its enormous size and marketing muscle to move aggressively into new markets. For example, FDC has been an early mover in China, signing up agents around that nation. As the Chinese economy grows, so too will the need to transfer money. You can bet that FDC will eventually build a dominant position in this fast-growing market.

The firm's credit processing business also benefits from large economies of scale, giving the company yet another wide economic moat. For example, First Data controls roughly 50% of the market for credit card payment processing services in the U.S. In addition, once a retailer signs up first FDC's service it involves some expense to switch providers. This gives the firm's credit processing business a fairly wide moat as well.

Kinder Morgan Energy Partners (KMP, $47.67)
Most of the nation's natural gas is pumped through pipelines. These pipelines include small local pipes used to distribute gas to individual customers, as well as larger trunk routes capable of hauling gas across long distances. Kinder Morgan operates a network of about 15,000 miles of natural gas pipelines around the U.S.

In addition to natural gas, crude oil and refined products like gasoline are also often transported around the country by pipeline. On this front, KMP boasts a network of about 10,000 miles of pipelines capable of handling these products.

The pipeline business is heavily regulated. For example, companies need to gain government approval in order to build new pipelines, and the environmental and safety requirements imposed are steep. As such, it's extremely expensive to build new pipelines. This makes the barriers to entry into the pipeline business very high. As such, it's unlikely that many new competitors will enter the market to compete with KMP.

What's more, regulators set the rates that pipelines can charge in exchange for transporting products. Regulators purposely limit competition to ensure that companies receive healthy rates that will allow a decent return on capital. As a result of this wide economic moat, KMP's core business is shielded from competition.

Yet another moat for KMP involves switching costs. Refineries and power plants are normally sited so that they're able to hook up to a nearby pipeline system. This ensures the plant or refinery a steady supply of needed products. Once a company is hooked into a pipeline system it may be impossible or simply too expensive to switch to a different pipeline network. In addition, in many cases there's only one pipeline available. As a result, customers very rarely switch to different pipeline providers, allowing existing pipeline operators to enjoy very stable revenue streams.

KMP is one of the best-managed pipeline companies in the U.S. The firm's management team is experienced and conservative, and the company's dividend yield of over 6% should remain secure even if oil and gas prices pull back from current levels.

American Express (AXP, $52.70)
American Express is best known for its signature American Express charge card. In addition, this diversified financial firm offers travel services, loans and business services.

The average American Express cardholder spends nearly $10,000 annually on his/her card. That's well more than twice what the average Visa or MasterCard holder spends. This makes American Express customers far more valuable for merchants -- these customers are the biggest spenders, and as a result, merchants need access to AMEX's customers. For this reason, AMEX charges a 2.6% transaction fee to its clients -- roughly a full percentage point higher than Visa and MasterCard. That higher rate is proof positive of AMEX's wide economic moat.

AMEX holds onto its valuable clientele in a number of ways. For starters, most consumer surveys suggest that AMEX offers superior customer service. In addition, the company offers special rewards such as free travel insurance and theft protection. AMEX has also had considerable success with its Rewards points program -- customers enrolled in this program tend to spend more and have better repayment records.

Finally, AMEX does not rely on third-party credit processors to process transactions. Instead, American Express processes its transactions through its in-house network. Not only does this curt down on expenses -- AMEX doesn't have to pay a third party for processing -- but it also enables the company to collect more data on consumers. More specifically, American Express gets to see both sides of every transaction -- the merchant's side and the consumer's side.

There are several avenues of growth ahead for AMEX. For starters, the company is beginning to leverage its payment network to offer payment-processing services for other companies. AMEX recently formed a partnership with MBNA, for example, to offer co-branded cards processed over the AMEX network. And looking at the longer-term picture, emerging markets in Asia and Latin America should continue to see strong growth in credit card use, providing American Express with a large base of potential new customers.

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We sincerely hope you've enjoyed today's look at several firms with wide economic moats. Please stay tuned for our next full Market Advisor issue, which we'll publish on Monday, May 16th. In it, my staff and I will provide you with an in-depth look at the tremendous impact that institutional money has on the marketplace. In doing so, we'll bring you an analysis of several companies with rising institutional ownership. Good investing in the week ahead!

Paul Tracy will be available to take your questions until Monday, May 9. Please use the form below to submit your questions.