(Story updated to note that S&P recently lowered its rating on Weight Watchers to "sell" from "buy" on valuation concerns.)
BOSTON (TheStreet) -- If you're still in a defensive investing posture after last year's stomach-churning market, it's time to consider buying the stocks of companies with impregnable market-leading positions.
Ratings firm Morningstar refers to them as "wide moat" companies.
A "wide moat," essentially, means a company has a distinct and sustainable competitive advantage over its peers that could protect its business in the event of a recession or a even a shift in the direction of its industry.The width of a company's moat is a result of a number of variables, including its size, brand-name strength, unique technologies, and the difficulty its customers may have in switching to a competitor's products. Those types of characteristics help keep a company and its cash flow stable in a difficult economy. And Morningstar says that "companies that have generated returns on capital higher than their cost of capital for many years running usually have a moat, especially if their returns on capital have been rising or are fairly stable." Morningstar found seven wide-moat companies with share-price returns ranging from 10% to 36% this year, a period in which the S&P 500 Index jumped 7%. But indicative of how quickly things can change and the moat can start to evaporate, two big money managers that are on the list below, which was issued Feb. 6 by Morningstar, have seen their shares tumble within the last week on poor results from late 2011 because of investor withdrawals due to the markets' volatility as well as proposed regulatory changes. Those firms, AllianceBernstein (AB) and Federated Investors (FII), face a new threat to their money market fund businesses, in the form of new regulations now being discussed by the Securities and Exchange Commission. If enacted, they could result in the fund firms having to raise capital to provide greater support to their funds in the event of a panic, or another that would allow the net asset value of money market fund shares to float, a decided departure from their now-fixed $1 a share benchmark, a change that would be sure to chase off investors seeking a safe, predictable return that these types of funds offer. Here are Morningstar's selection of seven stocks that have "wide moat" properties in inverse order of their share-price appreciation this year:
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