Hi Partner 👋
It’s TJ here.
Pieter asked me to share my 3 favorite Quality stocks with you.
When he did, I assumed he meant Quality stocks NOT currently in Our Portfolio.
He didn’t actually say that, but with that constraint in place, let’s dive in!
As a reminder, you always have access to Our Portfolio here.
What I Look For
When I’m looking for Quality stocks, I look for all of the typical criteria:
A wide moat
Great management
Good capital allocation
High profitability
The ability to reinvest at attractive rates for a long time
A secular trend or optimistic outlook
…
The most important thing, however?
The durability of the moat.
Yes, it’s important that the moat is wide right now.
But what’s more important is that it will still be wide in 10 or 20 years.
Why the moat matters
Look at the recent collapse in Fair Isaac (FICO).
Its moat depended largely on rules set by the Federal Housing Finance Agency (FHFA).
FHFA director Bill Pulte pushed to approve VantageScore 4.0 alongside FICO.
He also moved Fannie Mae and Freddie Mac toward a single mortgage pricing system.
Overnight, the regulatory barriers that forced the mortgage world to rely on FICO started to shrink.
And the stock has collapsed nearly 70% from its peak at the end of 2024.
Concerns about the durability of the moat are also what kept me out of Lululemon.
It’s got (or at least had) a strong brand, and their proprietary fabrics are incredible.
I know professionals in dance and fitness that gladly pay the premium for Lululemon.
Why? Because their clothes have quality and durability that competitors don’t.
But when I asked myself if I was confident on where the company would be a decade out, I couldn’t get to a ‘yes’.
One thing I am confident about?
That I have ZERO idea about where women’s fashion will be a decade from now.
But forced to guess, I would say it will likely be much different than it is now.
Think about how you can tell when a photo was taken based on the fashion.
Like the 70’s:
Or the 80’s:
In 20 years, there will probably be parties with a ‘2020s’ theme, where girls wear thrifted leggings and carry oversized water bottles.
So what are my 3 favorite quality stocks right now with moats that I think are durable?
Read on!
TJ’s favorites
3. Schneider Electric ($SU)
How does the company make money?
Schneider Electric is the global market leader in low-voltage electrical equipment and energy management.
They build the circuit breakers, electrical distribution systems, and liquid-cooling equipment required to power everything from commercial buildings to hyperscale data centers.
Schneider’s competitive advantage comes from switching costs and brand reputation.
An electrical failure in a manufacturing plant or an AI data center can result in catastrophic downtime and financial loss.
Because the cost of failure is so high, electricians and engineers have high loyalty to Schneider’s proven reliability
Once a facility standardizes on Schneider’s hardware and starts using its EcoStruxure software platform, switching to a competitor becomes incredibly difficult and risky.
Schneider has multiple tailwinds driving it:
Energy efficiency
Grid modernization
Industrial Automation
The AI Infrastructure buildout
That’s why it’s seen strong growth the past few years, and more importantly, that growth is projected to continue.
Now let’s dive into the top 2.