Here’s a weird truth about the stock market:
Some companies win just by showing up. Others fight tooth and nail and still lose.
The difference? A sustainable competitive advantage.
In Morningstar’s world, they call this an economic moat.
Let me show you exactly what that means—and how it can help you avoid portfolio landmines.
TLDR: What Is an Economic Moat?
- It’s a company’s ability to maintain long-term profitability and fend off competitors
- Morningstar ranks moats as none, narrow, or wide
- Moats are based on 5 key factors: switching costs, intangible assets, cost advantages, network effects, and efficient scale
- Companies with wide moats often compound returns over decades
- It’s a central part of Morningstar’s valuation and rating system
Read our review and learn how you can get an exclusive discount here.
1. Why the Term “Moat”?
Think medieval castles. A moat protects the castle from invaders.
Same idea here: an economic moat protects a company’s profits from competitors.
Wider the moat? Harder it is for rivals to chip away at market share or pricing power.
And Morningstar analysts evaluate these moats very seriously when deciding whether a company can sustain its edge over the long term.
2. The 5 Moat Sources Morningstar Looks For
1. Switching Costs
When it’s painful or expensive to switch providers, customers tend to stay put. Think enterprise software (like Salesforce).
2. Intangible Assets
Brands, patents, or government licenses that are hard to replicate. Think Coca-Cola or Pfizer.
3. Cost Advantage
Companies that can produce more efficiently than competitors. Think Walmart or Costco.
4. Network Effect
When the product becomes more valuable as more people use it. Think Visa or Meta.
5. Efficient Scale
Some markets are just too small for multiple players. Think utilities or regional airports.
If a company checks one or more of these boxes, it could have a narrow or wide moat.
3. How Morningstar Ranks Moats
- Wide Moat: Strong, sustainable advantage expected to last 20+ years
- Narrow Moat: Some edge, but not guaranteed to endure
- No Moat: No meaningful advantage—expect competition to erode profits
This isn’t opinion. Morningstar backs it up with fundamental analysis, competitive data, and management strategy review.
And yes—moats heavily influence their stock ratings.
TRENDING DEAL:
Disclaimers:
The Annual Percentage Yield (APY) is accurate as of 10/3/2025. The base and promotional interest rate and corresponding APY for Axos ONE® Checking is variable and is set at our discretion. The base and promotional interest rate and corresponding APY for Axos ONE® Savings is variable and is set at our discretion. Axos ONE® Savings is a tiered variable rate account. Axos ONE® Checking is a non-tiered variable rate account. Interest rates may change as often as daily without prior notice. Fees may reduce earnings.Promotional terms and conditions are subject to change or removal without notice. Incentive may be taxable and reported on IRS Form 1099-MISC. Consult your tax advisor. After the accounts are opened, the amount of incentive earned will depend on meeting the additional requirements outlined below.The Axos ONE® Checking account will earn a base rate of 0.00% APY. The Axos ONE® Savings account will earn a base rate of up to 1.00% APY.Axos ONE® accounts are eligible to receive a promotional APY for each statement cycle where the promotional criteria are met during the Qualification Period. To receive the promotional APY on both Axos ONE® Checking and Axos ONE® Savings, the Axos ONE® Checking account must meet both of the requirements in either Option 1 or Option 2 below during the Qualification Period:Option 1Your Axos ONE® Checking account has received monthly qualifying direct deposits of at least $1,500 in total.The average daily balance of your Axos ONE® Checking account is at least $1,500.Option 2Your Axos ONE® Checking account has received monthly qualifying deposits of at least $5,000 in total.The average daily balance of your Axos ONE® Checking account is at least $5,000.If both of the requirements in either Option 1 or Option 2 above are met during the Qualification Period:The Axos ONE® Checking account will earn a promotional rate of 0.51% APY for the statement cycle in which the requirements are met.The Axos ONE® Savings account will earn a promotional rate of up to 4.51% APY for the statement cycle in which the requirements are met.The Qualification Period begins on the first business day of the month and runs through the 25th of the month. If the 25th of the month is followed by a non-business day, the average daily balance will be calculated including the following non-business day(s). Any qualifying deposits or qualifying direct deposits received after the 25th of the month will count toward the next Qualification Period. The Qualification Period for new accounts will begin on the day the account is approved. New accounts opened on or after the 25th of the month will be eligible to earn the promotional APY starting in the following month.A direct deposit is an electronic deposit of your paycheck or government benefits, such as Social Security, Disability, etc. International paychecks, international government benefits, other deposits (i.e., online banking transfers, ATM and mobile check deposits, etc.), or person-to-person payments are not considered a direct deposit.Qualifying deposits only include deposits from the following eligible sources: (i) ACH transfers from external accounts, (ii) inbound wire transfers from external accounts, (iii) check deposits. Qualifying deposits do not include: (i) transfers internal to the bank (i.e., transfers between an account holder’s Checking and/or Savings account), (ii) interest payments, (iii) promotional bonuses, (iv) credits, reversals, and refunds.Both accounts must be in an open and active status on the 25th of the month and on the date the interest is paid to receive the promotional APY for that statement cycle. If either account closes during the Qualification Period, neither account will be eligible to earn the promotional APY for that statement cycle. Account transactions may take one or more business days from the transaction date to post to the account. Show Less
4. Why It Matters to You
Companies with wide moats often:
- Generate high returns on capital
- Reinvest at above-average rates
- Resist disruption better during downturns
In short? They compound wealth. And they do it with fewer surprises.
If you’re investing long-term, economic moats should be on your radar. Always.
The Cost? Practically Pays for Itself
Morningstar Premium is $34.95/month—or just $249/year if you go with the annual plan. (Plus, you can get $50 off with this exclusive deal to bring it down to $199.)
Sounds like a lot? Not when you put it in perspective.
Think about it: one solid insight from a Morningstar analyst could help you dodge a costly mistake or catch a breakout stock early. That alone can cover the subscription—and then some.
If you’re serious about building long-term wealth, this isn’t an expense.
It’s an investment in making smarter decisions.
Read More: Here are additional investment research tools to check out. I’ve always been a big fan of Seeking Alpha. But Morningstar has it’s advantages.
Want to build a portfolio that lasts?
Start paying attention to moats. Morningstar already is—and it’s one of the reasons their analysis stands out.
Because flashy gains are fun. But long-term resilience? That’s where real wealth is built.
Discover more from MoneysMyLife
Subscribe to get the latest posts sent to your email.
