Innovation is not necessarily dependent on the latest tech. Rather, an innovative business is one that creates genuine value for customers by delivering a product at a lower price or a higher quality-to-price ratio than what was available before. In terms of lower price, think of Costco, which beats Walmart and even the mighty Amazon by welcoming its members directly into its warehouse premises. In terms of quality-to-price think of the ever-growing value proposition of the Apple iPhone, now a 15-year-old invention.
But not every great innovation is a good investment. A successful innovative business must capture an adequate share of the value it creates. If an innovative product is easy to replicate, then everybody does it and nobody makes any money. Think of Peloton and its copycats. As such, we only invest in innovative businesses that possess or are in the process of building lasting barriers to competition to protect their profits, and whose market valuations present significant long-term upside to shareholders.
Planet Fitness: gyms for less
Planet Fitness (NYSE: PLNT) is a franchiser and operator of over 2,000 gyms in the US. Its no-frills gym and low-priced offering are disrupting the market and bigger competitors. The average gym membership fee in the US is $50 per month and Planet Fitness’ basic membership comes in at $10. Incumbent gyms are committed to their plush facilities and associated high costs, and are simply unwilling and unable to cannibalise their higher membership fees. This gives Planet Fitness its runway to grow. The company has weathered the pandemic well in a badly affected industry, and is well positioned to capitalise on the recovery.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Otis: on the way to the top
Otis (NYSE: OTIS), the lift maker, has recently spun out of its parent United Technologies. We love when excellent businesses spin out of poor performing conglomerates. With a portfolio of approximately 2.1 million elevator units, Otis is around 40%-50% bigger than the other three global original equipment manufacturers in elevator maintenance, which gives it opportunities to drive incremental scale advantages.
The elevator maintenance industry has retention rates of 95%, strong pricing power and the ability to add additional customer value through innovations. This means strong cash generation, which management, relishing the opportunity as a standalone company, is busy reinvesting in growth while returning the rest to shareholders via dividends and share buybacks. Meanwhile, the stock trades at a 40% discount to lower-quality peers Kone and Schindler, and we believe it is at a significant discount to intrinsic value.
American Express: handsome rewards are paying off
American Express (NYSE: AXP) is gaining market share against the big two card networks, Visa and Mastercard, as card transactions become electronic. Digital wallets and online checkouts create a more level playing field than leather wallets. The burgeoning ranks of Amex members are increasingly focused on rewards, where the company beats the big two hands down.
As commerce shifts online, merchants are pressured to reduce payments frictions, so accepting Amex is essential. The firm is thriving even though travel remains subdued. Revenues and profitability are above pre-pandemic levels. As travel recovers it will enjoy excellent operating leverage.
-
Gender pension gap rises to £113,000 – how to fill the shortfall and boost your pensionThe gender pension gap is growing, says Scottish Widows, with a third of women facing poverty in retirement
-
Highest value stocks and shares ISAs worth 17 times more than cashAhead of potential ISA reforms in the Budget, new FOI data highlights the significant gap between saving and investing your yearly tax-free allowance
-
Who is Jared Isaacman, SpaceX astronaut and Trump's pick as NASA chief?Jared Isaacman is a close ally of Elon Musk and the first non-professional astronaut to walk in space. Now, he is in charge of NASA
-
Three solid British stocks going cheapOpinion Ian Lance and Nick Purves, fund managers at Temple Bar Investment Trust, highlight three British stocks with strong cash flows and robust balance sheets
-
Is now a good time to invest in Barclays?Barclays' profit growth is healthy, and the stock is cheap compared with its rivals
-
Profit from other investors’ trades with CME GroupCME Group is one of the world’s largest exchanges, which gives it a significant competitive advantage
-
Key lessons from the MoneyWeek Wealth Summit 2025: focus on safety, value and growthOur annual MoneyWeek Wealth Summit featured a wide array of experts and ideas, and celebrated 25 years of MoneyWeek
-
Defeat into victory: the key to Next CEO Simon Wolfson's successOpinion Next CEO Simon Wolfson claims he owes his success to a book on military strategy in World War II. What lessons does it hold, and how did he apply them to Next?
-
Aircraft leasing companies can lift investors' portfoliosThe aircraft leasing business is a safer way to cash in on air travel and its booming demand. David Prosser explains how it works and how to access it
-
8 of the best houses for sale with fishing rightsThe best houses for sale with fishing rights – from a Georgian property on the banks of the River Derwent, County Durham, to a restored mill house in Marlborough with fishing rights on the River Kennet
