🔑 20 Undervalued Quality Stocks

Stocks active in oligopolies (where a few players dominate the entire market) outperform the benchmark.

In this article, you’ll find 20 great undervalued quality stocks which are active in an oligopoly.

Company 1: S&P Global ($SPGI)

S&P Global provides clients with financial information services (credit ratings, benchmarks, and analytics) in the capital and commodity markets.

• FCF margin: 42.9%

• ROCE: 126.3%

• FCF yield: 4.4%

• Expected FCF growth (next 3 years): 16.9%

• CAGR since IPO: 13.7%

Company 2: ASML ($ASML)

ASML is a monopolistic player in semiconductor chip machines through lithography. Over the next years and decades, demand for semiconductors will explode and ASML will clearly benefit from this. 

• FCF margin: 53.4%

• ROCE: 41.5%

• FCF yield: 2.5%

• Expected FCF growth (next 3 years): 18.3%

• CAGR since IPO: 25.3%

Company 3: Novo Nordisk ($NOVO-B)

Novo Nordisk is a dominant market leader in diabetes care offering. Due to the aging population and obesity, more and more people will suffer from diabetes in the future.

• FCF margin: 34.6%

• ROCE: 101.9%

• FCF yield: 3.2%

• Expected FCF growth (next 3 years): 15.6%

• CAGR since IPO: 19.9%

Company 4: Mastercard ($MA)

Mastercard provides financial transaction processing services for credit and debit cards. Together with Visa, Mastercard dominates this attractive market.

• FCF margin: 48.0%

• ROCE: 188.5%

• FCF yield: 3.2%

• Expected FCF growth (next 3 years): 15.8%

• CAGR since IPO: 31.0%

Company 5: Microsoft ($MSFT)

Everyone knows Microsoft and you will probably use it on a daily basis. Microsoft has a very wide moat in software applications, cloud storage, and advanced security solutions.

• FCF margin: 32.9%

• ROCE: 45.4%

• FCF yield: 3.6%

• Expected FCF growth (next 3 years): 15.3%

• CAGR since IPO: 23.0%

Company 6: Blackrock ($BLK)

Do you own an ETF from iShares? That’s a Blackrock product. BlackRock provides investment management services to institutional clients and retail investors through various investment vehicles.

• FCF margin: 23.8%

• ROCE: 11.7%

• FCF yield: 5.9%

• Expected FCF growth (next 3 years): 12.3%

• CAGR since IPO: 19.8%

Company 7: Thermo Fisher ($TMO)

Thermo Fisher Scientific manufactures scientific instruments, consumables, and chemicals. The company has a wide moat and operates at attractive margins.

• FCF margin: 17.3%

• ROCE: 46.1%

• FCF yield: 3.3%

• Expected FCF growth (next 3 years): 10.1%

• CAGR since IPO: 13.5%

Company 8: Automatic Data Processing ($ADP)

Automatic Data Processing is a global provider of business outsourcing solutions. ADP’s services include a wide range of human resource, payroll, tax, and benefits administration solutions.

• FCF margin: 17.7%

• ROCE: 132.6%

• FCF yield 3.3%

• Expected FCF growth (next 3 years): 12.5%

• CAGR since IPO: 14.9%

Company 9: Zoetis ($ZTS)

Zoetis is active in the market for animal health medicines and vaccines. More and more people are treating their pets as a full family member, and Zoetis fully benefits from this.

• FCF margin: 22.3%

• ROCE: 32.9%

• FCF yield: 2.9%

• Expected FCF growth (next 3 years): 10.6%

• CAGR since IPO: 20.9%

Company 10: Union Pacific ($UNP)

Union Pacific is a rail transportation company. The company is active since 1969 and operates in an oligopoly together with among others BNSF (part of Berkshire Hathaway).

• FCF margin: 28.0%

• ROCE: 14.2%

• FCF yield: 5.1%

• Expected FCF growth (next 3 years): 8.5%

• CAGR since IPO: 13.3%

Company 11: Moody’s ($MCO)

Just like S&P Global, Moody’s is a credit rating company. S&P Global, Moody’s and Fitch dominate the credit rating market. They were the market leaders in 1980, and probably will still be in 30 years from now.

• FCF margin: 30.0%

• ROCE: 72.8%

• FCF yield: 3.0%

• Expected FCF growth (next 3 years): 10.0%

• CAGR since IPO: 14.8%

Company 12: Sonova ($SOON)

Together with Demant, Sonova is a market leader in the market for premium hearing aids. Due to our aging population, more and more people are suffering from hearing problems.

• FCF margin: 24.3%

• ROCE: 50.7%

• FCF yield: 4.4%

• Expected FCF growth (next 3 years): 13.3%

• CAGR since IPO: 15.5%

Company 13: Visa ($V)

Everyone knows this company. Visa is a great quality business with a wide economic moat and incredible profit margins. The secular trends toward electronic payments gives Visa a lot of tailwinds. 

• FCF margin: 60.2%

• ROCE: 105.3%

• FCF yield: 4.5%

• Expected FCF growth (next 3 years): 15.5%

• CAGR since IPO: 22.3%

Company 14: Danaher ($DHR)

Danaher is a great acquirer active in medical instruments and life sciences. Furthermore, they also provide COVID tests.

• FCF margin: 24.0%

• ROCE: 60.9%

• FCF yield: 4.0%

• Expected FCF growth (next 3 years): 9.5%

• CAGR since IPO: 19.6%

Company 15: TransUnion ($TRU)

TransUnion operates as a credit reporting agency offering consumer reports, risk scores, analytical services, and decision capabilities. The company is an industry leader in an oligopoly together with Experian and Equifax.

• FCF margin: 19.7%

• ROCE: 151.7%

• FCF yield: 4.1%

• Expected FCF growth (next 3 years): 25.9%

• CAGR since IPO: 15.1%

Company 16: Stryker ($SYK)

Stryker is active in the market for specialty surgical and medical products. They sell implants, surgical navigation, and so on. Hospitals are very loyal clients giving Stryker a strong competitive advantage.

• FCF margin: 16.0%

• ROCE: 9.1%

• FCF yield: 3.0%

• Expected FCF growth (next 3 years): 12.8%

• CAGR since IPO: 17.9%

Company 17: IDEXX ($IDXX)

Together with Zoetis, IDEXX dominates the American market for animal health medicines and vaccines. This results in very high margins and an attractive growth outlook.

• FCF margin: 19.8%

• ROCE: 86.5%

• FCF yield: 2.0%

• Expected FCF growth (next 3 years): 13.0%

• CAGR since IPO: 20.7%

Company 18: Rightmove ($RMV)

Rightmove is the clear number 1 in the market for selling listed properties in the United Kingdom. Rightmove also publishes the House Price Index in Great Britain.

• FCF margin: 63.7%

• ROCE: 287.4%

• FCF yield: 5,12%

• Expected FCF growth (next 3 years): 7.4%

• CAGR since IPO: 19.1%

Company 19: Adobe ($ADBE)

Adobe is a true compounding stock active in computer software products and technologies. Adobe’s products allow users to express and use information across all print and electronic media.

• FCF margin: 43.6%

• ROCE: 125.2%

• FCF yield: 5.1%

• Expected FCF growth (next 3 years): 20.0%

• CAGR since IPO: 17.6%

Company 20: Copart ($CPRT)

Copart provides vehicle suppliers, primarily insurance companies, with a variety of services to process and sell salvage vehicles through auctions. Copart dominates the market for online auctions.

• FCF margin: 24.0%

• ROCE: 27.4%

• FCF yield: 3.2%

• Expected FCF growth (next 3 years): 8.2%

• CAGR since IPO: 20.0%

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About the author

Compounding Quality is a professional investor which manages a worldwide equity fund with more than $150 million in Assets Under Management. We have read over 500 investment books and spend more than 50 hours per week researching stocks.