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Stock Strategist

Seeking Small-Cap Moats: US Ecology

We continue to be impressed by this wide-moat hazardous-waste management firm.

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In the past few months, we've looked at three small caps--John Bean Technologies, Culp, and Badger Meter--that have potential narrow economic moats. These companies are not currently covered by Morningstar analysts, however, and as such haven't received official Morningstar economic moat ratings, so this month I wanted to profile a small cap that we do cover--indeed, one that has also received an official Morningstar wide economic moat rating.

As I noted in the series' introductory article, smaller companies with durable competitive advantages and long growth runways can make for particularly attractive investments since they have the ability to compound shareholders' capital at high rates over long periods of time. With this in mind, small-cap firms with wide economic moats are definitely worth watching. At Morningstar, we believe wide-moat firms can generate returns on new invested capital in excess of their cost of capital for at least 20 years, providing plenty of time for compounding growth. 

Todd Wenning does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.