Market pullbacks can feel unsettling, but for long-term investors, they offer some of the best opportunities to buy great businesses at reasonable prices. When sentiment turns negative, even high-quality companies with strong fundamentals can see their stock prices decline, not because their long-term prospects have changed, but because the market is reacting to short-term noise.
The goal of this article is simple, to discuss companies with durable competitive advantages, strong profitability, and clear growth trajectories that I am interested in starting positions in or adding to at the right price.
The five companies highlighted in this article are American Express, Amazon, Moody’s Corporation, Chipotle Mexican Grill, and Trane Technologies each of which have business models that provide them with pricing power, recurring revenue streams, and/or the ability to expand margins over time. While near-term risks and macroeconomic headwinds could create volatility, these are the types of businesses that have historically rewarded patient investors willing to take advantage of temporary sell-offs.
Below, I outline the fundamental strengths of each company, the price levels I’d be comfortable buying at, and the catalysts that could push them into my ideal range.
1. American Express (AXP)
American Express is a credit card company with a unique closed-loop payment network that gives it more control over transaction data, pricing, and rewards programs.
Investment Thesis
American Express leverages its closed-loop payment network to drive robust growth. This is fueled by a loyal affluent customer base and expanding international presence, illustrated by its success in Asia-Pacific in 2024. While near-term risks like interest rate uncertainty and discretionary spending slowdowns could pressure credit provisions, AXP’s leadership in digital payments, strategic focus on high-spending demographics, and consistent fee-driven revenue model position it for compelling long-term growth.
Business Quality
- ROIC: 24% (2024), 24% (5-year average)
- Operating Margins: ~20%
- 5-year FCF Growth: ~12%
- Powerful brand loyalty with a high-quality customer network
- Stable recurring fee income
Valuation Metrics
- Current Forward P/E: 17.0x
- 5-year Average P/E: ~20x
- Expected Long-term FCF Growth Rate: 10-12%
Price Target Range: $240-$260
Valuation Rationale
American Express has pulled back from its all-time highs, pricing in risks associated with potential consumer weakness. Given market volatility, an entry point around $240-$260 per share would equate to about 15-17x forward earnings. This would represent a price more inline with the company’s historic multiples. It is worth noting that pressure on the consumer resulting in increases in net-write-offs could spook investors and cause a more dramatic drawdown. While net-write offs remain low, such a pullback would be a wonderful opportunity for a company with long-term prospects.
Potential Catalysts for a Pullback
Higher-than-expected net write-offs or increases in provisions for credit losses, a sharp drop in discretionary spending, or a broader financial sector sell-off could push AXP into my buying range.
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2. Amazon (AMZN)
Amazon is the ultimate example of an ecosystem-driven business, leading not just e-commerce, but also cloud computing and digital advertising.
Investment Thesis
Amazon’s unmatched ecosystem which spans e-commerce, cloud computing, digital advertising, and AI-powered logistics. Its moat is centered on this powerful flywheel effect that competitors can’t easily replicate. AWS remains the core growth engine, allowing Amazon to make investments in robotics and generative AI, which are boosting efficiency across Amazon’s business. Meanwhile, Amazon’s rapidly growing advertising platform leverages the company’s consumer data, further enhancing profitability. While challenges such as inflation-driven retail margin pressures, on-going regulatory scrutiny and risks associated with elevated capital expenditures could create volatility, Amazon’s strategic initiatives position the company for sustained long-term growth and continued margin expansion.
Business Quality
- ROIC: 17.11 (2024), 15% (5-year average)
- Operating Margins: 10.8%
- 5-year FCF Growth: ~18%
- Massive scale advantages and extensive recurring revenues from Prime and AWS
Valuation Metrics
- Current Forward P/E: ~30x
- 5-year Average P/E: ~55x
- Expected Long-term FCF Growth Rate: 15-18%
Price Target Range: $170-$185
Valuation Rationale
Amazon’s stock price is currently off its highs after the market’s correction. The company already trades for a discount relative to its historic multiples. The market’s implied FCF growth rate around 17% annual cash flow growth for the next 10 years is inline with my assumptions. Despite the risks and given the nature of Amazon’s business and the ongoing AI-driven margin expansion, this price target range provides a reasonable entry point for Amazon. Entry at this level would equate to a 26-29x forward multiple which would provide a wonderful opportunity.
Potential Catalysts for a Pullback
Weaker-than-expected retail margins, regulatory fines, pressure from capital spending levels, or a tech sector rotation could drive AMZN into my target range.
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3. Moody’s Corporation (MCO)
A global credit rating agency providing ratings, research, and risk management services for capital markets.
Investment Thesis
Moody’s owns an enviable position in credit ratings (40% market share) and is rapidly expanding its analytics segment (MA). Growth in the MA segment is being driven by secular tailwinds for risk management and sustainability solutions. While short-term bond issuance volatility and difficult year-over-year comparisons might present temporary headwinds, Moody’s unmatched market position in ratings, AI-driven analytics growth and recurring revenue model make it a high-quality stalwart.
Business Quality
- ROIC: 27.5% (2024), 26% (5-year average)
- Operating Margins: 42%
- 5-year FCF Growth: ~10%
- Significant regulatory moat with stable recurring revenue streams
Valuation Metrics
- Current Forward P/E: 32x
- 5-year Average P/E: ~37x
- Expected Long-term FCF Growth Rate: 8-9%
Price Target: $400-$420
Valuation Rationale
At current prices, Moody’s is priced for around 9%-10% FCF growth. I assume a slightly more cautious view for long-term FCF growth of 8-9% for the company. Some weakness has already begun to be priced into Moody’s resulting in the stock to fall 17%, and only slightly higher than my price target. Despite the conservative nature of my assumptions, I would still apply a margin of safety to my price target. This would be around $400-$420 per share (28-30x forward estimates) which would offer an attractive entry point to capture Moody’s structural advantages and consistent growth.
Potential Catalysts for a Pullback
A prolonged bond market slowdown, weaker analytics growth, or a financial sector downturn could trigger further weakness in the stock.
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4. Chipotle Mexican Grill (CMG)
A fast-casual restaurant chain specializing in customizable Mexican-inspired dishes like burritos and tacos, emphasizing fresh, responsibly sourced ingredients.
Investment Thesis
Chipotle’s continued expansion toward 7,000 locations is fueled by powerful secular trends: growing consumer preference for healthier eating, sustainably sourced ingredients, and digitally enabled convenience. The brand’s strategic initiatives including Chipotlanes (digital drive-thru lanes) and AI-driven personalization are significantly boosting throughput, customer engagement, and margins. While near-term inflationary pressures present risks to profitability, Chipotle’s loyal customer base, scalable business model, and leading position in premium fast-casual dining create a durable long-term growth runway with ample opportunity for sustained margin improvement.
Business Quality
- ROIC: 21.81 (2024), 17.5% (5-year average)
- Operating Margins: 17.27%
- 5-year FCF Growth: ~31%
- Exceptional brand loyalty, strong digital revenue, continued efficiency improvements.
Valuation Metrics
- Current Forward P/E: 37x
- 5-year Average P/E: ~67x
- Expected Long-term FCF Growth Rate: 12-14%
Price Target: $40-$43
Valuation Rationale
As Chipotle’s growth has moderated so has its multiple. All the while, the company has become a more profitable, efficient business. While Chipotle has room for continued growth, the market expectation for 16% FCF over the next 10 years may be aggressive. A stock price in the low $40 would require a more reasonable FCF growth rate around 12-14%. At 32x forward earnings, this would provide an attractive entry point relative to historical valuations.
Potential Catalysts for a Pullback
Sharp rises in food costs perhaps as a result of tariffs, weaker consumer spending, or a restaurant sector sell-off could push CMG toward my price target.
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5. Trane Technologies (TT)
A leading provider of heating, ventilation, and air conditioning (HVAC) systems for residential and commercial applications, focused on energy efficiency and comfort.
Investment Thesis
Trane Technologies leads in sustainable HVAC innovation. The company is perfectly positioned to benefit from decarbonization trends and ongoing urbanization. Trane’s growing install base fuels its service revenue expansion supported by its brands (Trane, Thermo King, American Standard). Despite risks like transport refrigeration softness or residential demand volatility, Trane’s durable profitability, growing service annuity, and alignment with global green initiatives make it a high-quality compounder.
Business Quality
- ROIC: 25.14 (2024), ~14% (5-year average)
- Operating Margins: 17.5%
- 5-year FCF Growth: ~10%
- Technological leadership with stable, recurring service revenues
- Able to maintain premium pricing and substantial switching costs
Valuation Metrics
- Current Forward P/E: 27x
- 5-year Average P/E: ~32x
- Expected Long-term FCF Growth Rate: 10-12%
Price Target Range: $300-$325
Valuation Rationale
Given Trane’s substantial backlog, expanding service business, and operational leverage opportunities, shares would be attractively priced between $300-$325. At these levels, shares would trade at 23-25x forward estimates, more inline with Trane’s 10 year average. Investors would be securing a high-quality business and leader in sustainable, energy-efficient infrastructure.
Potential Catalysts for a Pullback
Softness in transport refrigeration demand, a pullback in residential HVAC demand, and potential headwinds from tighter credit conditions in China could create a buying opportunity.
Final Thoughts
Investing in high-quality businesses at the right price is one of the most effective ways to build long-term wealth. While markets can be unpredictable in the short run, for long-term investors, focusing on companies with strong competitive advantages, pricing power, and consistent profitability increases the odds of success.
The companies highlighted in this article are all exceptional businesses, but that doesn’t mean they’re always trading at attractive valuations. Investing requires patience. When market volatility creates opportunities, being ready to act with a disciplined buying strategy can make a significant difference.
For me, that will not necessarily mean buying a full position at the first sign of weakness. Generally, it will mean legging into positions as opportunities present themselves. This could be as a result of sentiment shifting or macroeconomic concerns weighing on stock prices. Either way, I’ll be watching for opportunities to build positions in these companies at my target price ranges. History has shown that buying quality businesses at reasonable valuations pays off over time, and I expect the same to hold true for these five stocks in the years ahead.
Disclosure: I hold a long equity position in American Express, Amazon and Moody’s.
