Monopoly Definition and 11 Near Monopoly Stocks in the US
In this article, we will take a look at the 11 near-monopoly stocks in the US. If you want to see more stocks in this selection, go to the 5 Near Monopoly Stocks in the US.
A pure monopoly, by definition, refers to a company with no competition whatsoever – a sole provider of a particular product or service. An illustration of this was Microsoft Corporation (NASDAQ:MSFT), which, at one point, stood as the exclusive seller of software and operating systems for computers, leaving consumers with only one option for these products. The connection between monopolies and U.S. consumers is rife with contradictions. Americans harbor suspicions about companies that wield a dominant influence over their industries, closely monitoring how these entities leverage their size and market dominance to maximize profits. Paradoxically, while Americans express concerns about monopolistic power, they readily embrace the advantages associated with economies of scale. Large market leaders are often preferred over small family businesses attempting to compete, fostering an environment that encourages rather than discourages the expansion of market share by substantial corporations.
Monopolies wield significant pricing power, a crucial factor that investor Warren Buffett carefully considers when selecting stocks for his globally tracked portfolio. During his 2011 testimony before the US Congress, Buffett cited pricing power as a vital criterion for evaluating a business. He emphasized that a business with the ability to increase prices without losing market share to competitors exhibits a robust business model.
While pure monopolies are rare, some contemporary companies exhibit what can be termed near-monopolies. Benefiting from economies of scale, these corporations establish formidable barriers that discourage new entrants from challenging their dominance. Market leaders like Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN) that have penetrated a sector and captured a substantial portion of the market are deemed as some of the best monopoly stocks in that regard. In a bid to expand their market share and revenue, these companies often diversify their product offerings. While they may allows some space for competition, companies like the ones mentioned above boast considerable market power, exerting significant influence over the industry.
In theory, a near-monopoly may not pose a problem, but in practice, such a system may not work in the best interests of consumers unless it is closely monitored. In the absence of competition, monopolies may set excessive prices, offer poor-quality products, and eliminate alternatives to maximize their own profits. While the law doesn't outright prohibit monopolies, various regulations have been implemented to ensure that such companies operate fairly. The Sherman Antitrust Act is a significant piece of legislation used to break up companies that hinder competition and prevent mergers and acquisitions that could lead to a virtual monopoly. While these regulations may limit the profits of monopolies, investors often find these stocks appealing. The substantial market share held by monopolies is likely to contribute to growth and value over time, mitigating some of the inherent risks associated with investing in any security.
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Our Methodology
We've identified 11 stocks in the US that exhibit near-monopoly characteristics based on their substantial market share. Several of these companies are part of the FAANG group. The major technology corporations within this list maintain a dominant market presence across various sectors, such as cloud computing, e-commerce, mobile application services, mobile operating systems, search engines, social networking, and web browsers. Additionally, the remaining stocks in the selection assert near-monopoly positions in diverse sectors, including alcoholic beverages, personal credit rating, and satellite radio. The rankings are determined by the number of hedge funds holding stakes in these stocks as of Q3 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
11. Pearson plc (NYSE:PSO)
Number of Hedge Fund Holders: 9
Pearson plc (NYSE:PSO) is a British multinational publishing and education company with its headquarters in London. Initially established as a construction business in the 1840s, it transitioned to publishing in the 1920s. The company holds the distinction of being the largest publisher of educational materials and textbooks globally.
Pearson plc(NYSE:PSO) generates approximately two-thirds of its revenue and profit from the US market. With a market share exceeding 40%, the company is a dominant force in the fields of assessment, publishing, and online program management in the US. In contrast, the remaining segment of the education publishing and assessment service market is highly fragmented, with numerous smaller players.
At the end of Q3 2023, 9 hedge funds in Insider Monkey’s database reported having stakes in Pearson plc (NYSE:PSO), a slight increase from the previous quarter. The collective value of these stakes is over $15.87 million. Among these hedge funds, 13D Management was the company’s leading stakeholder in Q3 2023.
Much like Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN), Pearson plc (NYSE:PSO) operates as one of the best monopoly stocks in the US.
10. Anheuser-Busch InBev SA/NV (NYSE:BUD)
Number of Hedge Fund Holders: 21
Anheuser-Busch InBev SA/NV (NYSE:BUD), is an American brewing company with its headquarters situated in St. Louis, Missouri. Currently recognized as the world's largest brewing company. Anheuser-Busch InBev SA/NV possesses an array of global brands, including renowned names such as Budweiser, Michelob, Stella Artois, and Beck's.
While the company has suffered controversies in the past few months, it continues to hold the distinction of being the largest beer producer globally by volume. In 2022, the company achieved a staggering global production volume of 595 million hectoliters, representing over 25% of the total global beer production. Furthermore, Anheuser-Busch InBev Sa/NV (NYSE:BUD) reported robust financial figures with a revenue of $57.7 billion and a net income approaching $6 billion in 2022.
Bill & Melinda Gates Foundation Trust was one of the largest shareholders in Anheuser-Busch InBev SA/NV (NYSE:BUD) at the end of the third quarter of 2023, holding 1.7 million shares valued at $94.17 million. Overall, 21 hedge funds reported holding stakes in the company as of the end of the quarter.
In its Q2 2023 investor letter, Broyhill Asset Management, a boutique investment firm, commented about Anheuser-Busch InBev SA/NV (NYSE:BUD). Here is what the firm said:
“The largest detractors to performance over the quarter were First Horizon Corp (FHN), Anheuser-Busch InBev SA/NV (NYSE:BUD), and Bayer (BAYRY). Problems at Anheuser Busch InBev began on April 1 with Dylan Mulvaney’s social media post, which ignited a fiery backlash amongst Bud Light customers across ‘Merica. With volumes down sharply, and competitors gaining share at BUD’s expense, operational deleveraging is set to weigh heavily on US margins amid peak demand pressure in the second quarter. Despite severe US headwinds (second-quarter operating profit maybe half of last year’s levels), we still expect BUD to grow consolidated operating profit at a mid-single-digit rate for the full year. With current issues well understood and investor sentiment in the gutters, we see significant upside in a stock, which is approaching a double-digit FCF yield. With FX headwinds and rising input costs reversing course, increasing margins are likely to drive positive surprises into FY24 as continued deleveraging accrues more value to shareholders.”
9. Sirius XM Holdings Inc. (NASDAQ:SIRI)
Number of Hedge Fund Holders: 24
Sirius XM Holdings Inc. (NASDAQ:SIRI) is a U.S.-based broadcasting corporation with its headquarters located in Midtown Manhattan, New York City. Specializing in satellite radio and online radio services within the United States, the company holds a monopoly in the satellite radio market. In response to Pandora's efforts to compete for market share, Sirius XM Holdings Inc. (NASDAQ:SIRI) thwarted these attempts by acquiring Pandora in July 2021 for $3.5 billion.
24 out of the 910 hedge funds profiled by Insider Monkey had bought and owned Sirius XM Holdings Inc. (NASDAQ:SIRI)’s in Q3 2023. Out of these, the biggest investor was Cliff Asness’ AQR Capital Management due to its $66.1 million investment.
8. Altria Group, Inc. (NYSE:MO)
Number of Hedge Fund Holders: 40
Altria Group, Inc. (NYSE:MO) stands out as a notable American corporation, recognized as one of the largest manufacturers and promoters of tobacco, cigarettes, and associated products on a global scale. The company operates globally from its headquarters in Henrico County, Virginia. Boasting an impressive 54-year record of consistently increasing dividends, Altria Group, Inc. (NYSE: MO) has demonstrated considerable expertise in effectively navigating market downturns.
Altria Group, Inc. (NYSE:MO) holds a prominent position as the leading entity in the cigarette and tobacco manufacturing industry, serving as the parent company for Philip Morris USA, John Middleton, Inc., U.S. Smokeless Tobacco Company, Inc., and Philip Morris Capital Corporation. Additionally, Altria Group, Inc. (NYSE:MO) holds substantial minority interests in AB InBev, a Belgian brewer, and Cronos Group, a Canadian cannabis company. This substantial market share bestows upon Altria Group, Inc. (NYSE:MO) significant pricing power, enabling the company to achieve robust results in both top-line and bottom-line performance.
According to Insider Monkey’s data, 40 hedge funds were long Altria Group, Inc. (NYSE:MO) at the end of the third quarter of 2023, compared to 43 funds in the last quarter. Natixis Global Asset Management’s Harris Associates held the largest stake in the company, with 9.6 million shares worth $404.5 million.
7. Fair Isaac Corporation (NYSE:FICO)
Number of Hedge Fund Holders: 44
Fair Isaac Corporation (NYSE:FICO) offers analytics software and tools applicable across various industries for risk management, fraud prevention, customer relationship building, operational optimization, and regulatory compliance. Headquartered in Bozeman, Montana, the company's FICO score has become a fundamental element in U.S. consumer lending.
On November 8, Fair Isaac Corporation (NYSE:FICO) disclosed its financial results for the quarter ending September 30, 2023. The company experienced a 12% year-on-year revenue growth, reaching $390 million, while net income also saw a corresponding 12% year-on-year increase, reaching $101 million. Following this earnings announcement, Barclays analyst Manav Patnaik raised the price target for Fair Isaac Corporation (NYSE:FICO) shares from $950 to $1234, maintaining an 'Overweight' rating. This adjusted price target indicates a potential upside of 21.48% based on the share price as of November 13.
In Q3 2023, Insider Monkey tracked 910 hedge funds, and among them, 44 held shares of Fair Isaac Corporation (NYSE:FICO) with a total value of $2.12 billion. The most significant hedge fund stake was held by Valley Forge Capital, managed by Dev Kantesaria, which owned 943,048 shares valued at $819.06 million.
6. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 134
Apple Inc. (NASDAQ:AAPL), headquartered in California, is a diversified technology company and currently stands as the world's largest company in terms of market capitalization. The company holds a near-monopoly status in the domains of mobile application stores and mobile operating systems. Additionally, Apple Inc. (NASDAQ:AAPL) is a prominent market leader in the web browser segment, placing it alongside some of the other major tech companies often referred to as the Big 5.
According to Dan Ives of Wedbush, there is a belief that Apple Inc. (NASDAQ:AAPL) has the potential to reach a $4 trillion market cap in 2024. The analyst is optimistic about Apple's prospects, anticipating the company to enhance its artificial intelligence (AI) capabilities by introducing an AI app store next year, coupled with an expected boost in its services revenue.
As of September 2023 end, 133 out of the 910 hedge funds polled by Insider Monkey had bought and owned the firm’s shares. Apple Inc. (NASDAQ:AAPL)’s largest shareholder in the third quarter remained Warren Buffett’s Berkshire Hathaway which owned 915.56 million shares that are worth $156 billion.
A member of the Big Five, Apple Inc. (NASDAQ:AAPL), much like Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN), is one of the best monopoly stocks in the US.
In its Q3 2023 investor letter, Baron Funds highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“After a strong start to the year, shares of Apple Inc. partially retraced their gains this quarter. Mixed second calendar quarter financial results, with iPhone, iPad, and Wearables revenue coming in just shy of consensus expectations, coupled with elevated investor concerns about the macro economy and potential weakness in consumer spending later this year, pressured shares. Despite these quarterly fluctuations in product sales, we are encouraged by several long-term trends, including: (1) revenue from higher-margin services like the App Store, iCloud, and Apple Pay, which are growing faster than the overall business, driving better revenue visibility and higher free-cash-flow (FCF) margins; (2) continued gains in global market share in smartphones, wearables, and other hardware categories; and (3) consistent returns of capital to shareholders via share repurchases and dividends. On top of these trends in the core business, Apple is thoughtfully investing in new categories like augmented reality, search, financial services, and streaming media content. We took advantage of weakness in the quarter to add to our position in Apple.”
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Disclosure. None. Monopoly Definition and 11 Near Monopoly Stocks in the US was initially published on Insider Monkey.