How to Find Stocks With Competitive Advantages Using a Stock Screener

Finding stocks with durable competitive advantages is the most reliable path to long-term wealth creation. But with thousands of publicly traded companies, the process requires a systematic approach: start with quantitative filters to narrow the field, then apply qualitative judgment to identify the businesses most likely to compound wealth over decades.

Here is the exact process, step by step, using Moatifi's free screener alongside fundamental analysis.

Why Competitive Advantages Matter (With Numbers)

A company with a competitive advantage earns higher returns on capital than its competitors, and keeps earning them. Without an advantage, above-average profits attract competition, which drives returns down to the cost of capital. With an advantage, the company is protected.

The data makes this concrete: among Moatifi's screened stocks, the top-scoring moat companies average an ROE above 40% and ROIC above 30%. The broader market averages roughly 12-15% ROE. That gap, sustained over years, is the moat at work.

To understand the compounding impact: $100,000 invested at 15% ROE for 20 years grows to roughly $1.6 million. The same amount at 35% ROE grows to $40 million (assuming full reinvestment at similar rates). The difference between an average business and a moat business is not incremental. It is transformational.

Step 1: Start With Financial Filters

Before analyzing competitive advantages qualitatively, use numbers to narrow the field. Genuine moat businesses consistently show specific financial signatures.

High Return on Equity (ROE)

ROE measures how efficiently a company uses shareholder capital. Look for 5-year average ROE above 15%, with 20%+ being the sweet spot.

From the Moatifi screener, top ROE performers include: - Apple (AAPL): 164% ROE (amplified by share buybacks reducing equity) - ASML (ASML): 55% ROE (monopoly pricing on EUV lithography) - NVIDIA (NVDA): 49% ROE (CUDA ecosystem lock-in) - Texas Pacific Land (TPL): 45% ROE (zero-capex royalty model) - Paychex (PAYX): 42% ROE (payroll switching costs)

High Return on Invested Capital (ROIC)

ROIC is more telling than ROE because it accounts for debt. A company earning high ROIC generates excellent returns on ALL capital employed, not just equity. This distinction matters because companies can artificially inflate ROE by loading up on debt (which shrinks the equity denominator).

Look for 5-year average ROIC above 12%. Standouts include: - Apple (AAPL): 65% ROIC - TPL: 56% ROIC - ASML: 46% ROIC - NVIDIA: 42% ROIC - lululemon (LULU): 40% ROIC

When a company earns 40%+ ROIC with low leverage, the returns are genuine, driven by competitive advantages rather than financial engineering.

Conservative Debt Levels

Warren Buffett has repeatedly emphasized that great businesses rarely need much debt. High leverage can mask weak economics and amplifies risk during downturns. Screen for debt-to-equity below 1.0, ideally below 0.5.

TPL stands out here with zero debt and 56% ROIC. NVIDIA carries a modest D/E of 0.37 while earning 42% ROIC. When returns are this high without leverage, the competitive advantage is unmistakable.

Consistent Free Cash Flow

A real competitive advantage converts reported earnings into actual cash. The business should generate positive free cash flow in most years, with a growing trend. Be skeptical of companies with high reported earnings but weak cash flow; that pattern often signals aggressive accounting rather than genuine profitability.

Step 2: Score the Moat Qualitatively

Numbers tell you a moat likely exists. Qualitative analysis tells you what kind and how durable.

For each candidate that passes the financial filters, ask these questions:

What type of advantage does this company have?

  • Switching costs? Paychex: once businesses integrate payroll systems, switching risks missed paychecks and regulatory errors.
  • Network effects? Google: more users generate more search data, which improves results, which attracts more users.
  • Brand power? lululemon: customers pay $128 for yoga pants when functional alternatives cost $30.
  • Scale advantages? Old Dominion Freight Line: decades of service center network density that cannot be replicated overnight.
  • Unique assets? TPL: 880,000 acres of irreplaceable Permian Basin land rights.

Can a well-funded competitor replicate this?

This is the critical test. If Amazon or Google could spend $10 billion and replicate the advantage in three years, it is not a durable moat.

ASML's EUV lithography monopoly took decades of R&D and partnerships with Zeiss for precision optics. No one is replicating that quickly. Conversely, many "moats" in consumer software evaporate when a better-funded competitor decides to compete on price.

Is the moat widening or narrowing?

The best investments are in companies whose advantages are getting stronger. NVIDIA's CUDA ecosystem becomes more entrenched as more developers and frameworks adopt it. Adobe's file format standards become more embedded as more creative assets are built on them. Microsoft's cloud transition increased switching costs rather than reducing them.

Contrast this with Meta (Facebook), where the core social network is losing engagement among younger users to TikTok. The moat still exists, but it is narrowing for the flagship product.

Step 3: Evaluate Management

A strong moat with poor management is a wasting asset. Charlie Munger put it bluntly: "Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns."

Assess three dimensions:

  • Capital allocation: Does management reinvest wisely, or waste cash on overpriced acquisitions? Microsoft under Satya Nadella has been exceptional here, pivoting to cloud while maintaining discipline. Contrast this with companies that destroy billions on empire-building mergers.
  • Debt discipline: Conservative balance sheets protect the moat during downturns. TPL (zero debt) and NVIDIA (D/E: 0.37) exemplify this.
  • Shareholder alignment: Insider ownership, rational buyback programs (buying below intrinsic value, not at any price), and honest communication in annual letters.

Step 4: Use Moatifi to Shortcut the Process

Here is how to use Moatifi's screener efficiently:

  1. Visit the Candidates page. All top candidates are displayed, pre-scored on moat, management, and business quality.
  2. Sort by moat score. Focus on companies rated 8-9 for the widest moats.
  3. Click into individual stocks. Each company has a detailed analysis page with moat reasoning, risk assessment, and investment thesis.
  4. Check the pipeline. See 68+ total analyzed companies at various stages of evaluation.

The screener handles the quantitative heavy lifting automatically. The investor provides the judgment on whether the moat thesis makes sense for each specific company.

Step 5: Verify With Independent Research

Never rely on a single source. Use screener analysis as a starting point, then:

  • Read the annual report. The CEO's letter often reveals management quality. Buffett's Berkshire letters are the gold standard; look for similarly candid communication.
  • Study the competitive landscape. Who are the real threats? For NVIDIA, it is not AMD's hardware (CUDA ecosystem is the moat). For Adobe, it is Figma and Canva (which is why Adobe tried to acquire Figma).
  • Think in decades. Will this business matter in 20 years? ASML's monopoly on chip manufacturing equipment looks durable. A trendy consumer app does not.

Real Example: Finding Adobe's Moat

Here is how this process works with Adobe (ADBE):

  1. Financial screen: ROE 40%, ROIC 35%, D/E 0.38. Passes easily.
  2. Moat identification: Switching costs (Creative Cloud lock-in, file format standards), intangible assets (industry-standard software), ecosystem effects (creative professionals standardize on Adobe for collaboration).
  3. Durability test: Creative professionals have used Photoshop for 30+ years. The moat is widening as AI features like Firefly are built into the existing ecosystem, making Adobe harder to leave rather than easier.
  4. Management check: Consistent ROE/ROIC, moderate leverage, strong FCF generation, successful transition from perpetual licenses to subscriptions.
  5. Competitive threat assessment: Figma challenged Adobe in UI/UX design. Adobe's attempted acquisition (blocked by regulators) shows management takes competitive threats seriously.

Adobe is exactly the kind of stock this process surfaces: high returns on capital, deep switching costs, and a moat that is widening rather than narrowing.

Key Principles to Remember

  • Quantitative filters first, qualitative judgment second. Do not fall in love with a narrative that the numbers do not support.
  • Focus on durability, not just current strength. A moat that lasts 20 years is worth far more than one that lasts three.
  • Be patient with valuation. The best moat stocks are often expensive. Overpaying for a great business still produces mediocre returns.
  • Concentrate in your best ideas. Buffett: "Diversification is protection against ignorance. It makes little sense if you know what you are doing."

Start Finding Moat Stocks Today

Ready to screen for competitively advantaged businesses? Visit Moatifi's screener to explore moat scores, management ratings, and detailed investment theses for every candidate.