05/2019 KIPLINGER’S PERSONAL FINANCE 59buyer of its own shares.
During the 2018 fourth-
quarter market downturn,
management snapped up
1.2% of available shares.
A.O. Smith has raised its
dividend for 27 consecutive
years; the shares yield 1.7%.
The stock is a good value,
considering the company’s
healthy 14% net profit mar-
gin and a history of beating
earnings expectations, says
analyst Ryan Connors, of
Boenning & Scattergood
Equity Research.WIDE MOATS
A wide moat is a competi-
tive advantage that keeps
corporate competitors away.
Sometimes a wide moat can
be a brand’s great reputa-
tion, such as Apple’s or
Coca-Cola’s. Or it can be
the cost or the headache of
switching to a competitor.
WALT DISNE Y (DIS, $115)
has introduced families to
such beloved characters as
Mickey Mouse, Buzz Light-
year and Princess Anna of
Arendelle. They make Dis-
ney a premier producer of
children’s movies and draw
visitors to the company’s
theme parks. Studio enter-
tainment, which includes
movies and live stage plays
(think Disney on Ice), ac-
counts for roughly 12% of
the company’s revenues.
Media networks, such as
ESPN and the Disney Chan-
nel, bring in 39%. Theme
parks plus consumer prod-
ucts (all those souvenirs!)
account for 45% of sales.
Disney is expected to dig
a wider moat now that it has
closed a $71 billion deal to
purchase Twenty-First
Century Fox. The acquisi-
tion could add more than350 television channels in
170 countries. Disney has
also decided to pull its mov-
ies from Netf lix and launch
its own streaming video
service, which investment
research firm UBS esti-
mates will draw 50 million
subscribers in the first five
years. Trading at 16 times
analysts’ earnings estimates
for the year ahead—a touch
less than the S&P 500—the
stock looks cheap given Dis-
ney’s robust 18.5% profit
margin and its growing me-
dia stake.
Incorporated in Boston
in 1832, investment firm
STATE STREET CORP. (S T T, $70)
caters to institutional inves-
tors such as mutual funds,
retirement plans and invest-
ment managers. Funds and
other money managers need
a separate custodian to hold
the securities they buy, and
State Street does just that.
The company also helps ad-
minister pensions and other
financial businesses. All
told, it has more than $31.6
trillion in assets in custody
and administration.
State Street’s moat is two-
fold: First, its size enables it
to be the low-cost provider
for many of the world’s larg-
est investment managers,
and second, switching from
one custodian to another is
a headache of Brobdingnag-
ian proportions.
As investment managers
have cut fees, State Street
has had to embark on major
cost-cutting measures of its
own. The company expects
to realize $350 million in
cost savings in 2019. Ana-
lysts expect State Street to
earn $6.81 per share in 2019
and $7.61 in 2020, compared
with $6.40 in 2018. As with■ CSX SHIPS
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