Every investor wants to own the best companies. These are the compounders that steadily reinvest capital and grow earnings year after year. The problem is the market rarely misprices them. Great businesses almost always trade at a premium, and when investors overpay, even for the best names, future returns suffer.
With the S&P 500 trading near 21x forward earnings in today’s bull market, many quality stocks are already at new highs. Multiples for several of these names sit well above long-term averages, which makes patience essential. The way to prepare is by keeping a shopping list of stocks worth owning when prices eventually reset. Pullbacks will come, and in this market opportunities rarely last long.
This article highlights five companies with durable moats and reinvestment runways that support long-term compounding. For each, I will look at fundamentals, explain why the business belongs on my list, and weigh valuation through both discounted cash flow and historic multiples.
Studying them now keeps us ready if the market offers a better entry. In my last shopping list article — 5 High-Quality Stocks to Watch During This Pullback — April’s dip gave patient investors a chance to buy at better prices. Most of those names have since moved up meaningfully, with one only recently entering its target range. My goal here is the same, to prepare for the next opportunity.
Key Metrics Summary for Five Quality Compounders
The table below summarizes key metrics for these five compounders.
1. Costco (COST)
Perhaps familiar to most, Costco is a wholesale retailer with a membership-only warehouse model. The company operates through a simple formula built on low merchandise markups, scale efficiency, and disciplined management, but done exceptionally well.
Fundamentals Snapshot
- Revenue Growth (LTM YoY): 5.9% vs. 10.8% 5-year CAGR
- EPS Growth (LTM YoY): 9.2% vs. 14.9% 5-year CAGR
- Gross Margin: 13.0% vs. 12.6% 5-year avg
- Operating Margin: 4.0% vs. 3.5% 5-year avg
- ROIC: ~30% vs. ~29% 5-year avg
- Forward P/E (NTM): ~50x vs. ~44x 5-year avg
Why Own the Company
Costco is one of the clearest examples of a compounding machine in retail. Membership renewal rates above 90% make profits recurring and stable, while scale and brand trust reinforce pricing power for those rates. ROIC consistently hovers near 30%, and new stores generate 20%+ incremental returns. This gives Costco multiple ways to reinvest. The retailer continues its warehouse expansion with 27 new openings expected in 2025, including international markets where sales per square foot often exceed U.S. levels. Management has also expanded its Kirkland private label, which now accounts for ~30% of sales and provides a lift to margins. Together, these drivers make Costco highly predictable and capable of sustaining double-digit earnings growth for years to come.
Entry Point Below $800
Costco trades around 50× forward earnings, a premium to both its 10-year average around 36x and its 5-year average around 44x. That premium reflects the company’s steady double-digit EPS growth and defensive moat, but it is also pricing in Costco’s quality and predictability. The premium also explains why the stock is only up 6% over the last year. While my DCF suggests a fair value under $700 per share, at 44×, Costco would trade closer to $790. This would be a more reasonable level to begin building a position based on historic norms.
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2. Fastenal (FAST)
Unless you are in manufacturing, Fastenal may be a less familiar name. Fastenal distributes industrial and construction supplies — from fasteners and tools to safety, metalworking, and janitorial products — through branches, on-site locations, and vending machines across North America.
Fundamentals Snapshot
- Revenue Growth (LTM YoY): 4.8% vs. 7.2% 5-year CAGR
- EPS Growth (LTM YoY): 4.0% vs. 7.3% 5-year CAGR
- Gross Margin: 45.3% vs. 45.7% 5-year avg
- Operating Margin: 20.1% vs. 20.4% 5-year avg
- ROIC: ~26% vs. ~25% 5-year avg
- Forward P/E (NTM): ~43x vs. ~33x 5-year avg
Why Own the Company
Fastenal’s edge comes from scale and proximity. The company has built one of the densest branch networks in North America, but the real strength lies in its vending machines and on-site programs. By putting inventory inside customer facilities, Fastenal cuts downtime and becomes part of daily operations. That kind of embedded presence is hard to replace and creates meaningful switching costs.
Every order, whether through a vending machine, eProcurement tool, or online platform, generates data. At scale, that data makes Fastenal better at forecasting demand and automating replenishment, which keeps customers tied more closely to the system. Over time, this creates a loop where scale produces data, data improves efficiency, and efficiency strengthens customer loyalty.
Management is working to push these advantages further. Digital channels now drive more than 60 percent of sales, supply chain investments are improving service while reducing costs, and new on-site programs remain the biggest driver of unit growth. Large-account initiatives like “Focus 40” are designed to capture a greater share of spending from existing customers. These efforts are showing up in results. In Q2 2025, revenue topped $2 billion for the first time and EPS rose nearly 13 percent.
Entry Point Below $40
Fastenal is already off its highs, now trading around $47 per share, or 43× 2025 EPS. That multiple is still well above its 5-year average around 33x and reflects more than just steady growth. The market is effectively paying up for the company’s quality, and the possibility that secular trends like reshoring manufacturing will accelerate demand. Applying the historic multiple implies an entry closer to $37 per share, which aligns with my DCF fair value in the mid-$30s.
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3. Waste Management (WM)
While it may not be as flashy as tech or retail, Waste Management plays a critical role in everyday life. It is North America’s leading integrated waste services provider, handling collection, transfer, recycling, and disposal with end-to-end control from route to landfill to energy recovery.
Fundamentals Snapshot
- Revenue Growth (LTM YoY): 14.1% vs. 7.4% 5-yr CAGR
- EPS Growth (LTM YoY): 7.1% vs. 11.7% 5-year CAGR
- Gross Margin: 39.7% vs. 38.0% 5-yr avg
- Operating EBITDA Margin: 29.6% vs. 28% 5-yr avg
- ROIC: 12.3% vs. ~14% pre-2020 average
- Forward P/E (NTM): 28x vs. 27x 5-yr avg
Why Own the Company
WM’s moat is one of my favorites because it is asset-based and reinforced by regulation. Landfills are scarce and difficult to permit, and WM owns more than 260 of them. That scale is nearly impossible to replicate, which gives the company durable pricing power and makes its assets strategically valuable.
On top of that, WM layers in route density and vertical integration. Fewer miles per pickup mean lower costs, and controlling the full chain from collection to disposal to converting landfill gas into renewable energy. This keeps margins steady and cash generation strong. Long-term contracts with municipalities and businesses lock in recurring revenue and reduce cyclicality.
Management continues to push growth levers. Pricing power remains the biggest driver, with annual rate hikes of 4–6 percent which have offset soft volumes. Acquisitions, including the Stericycle deal, expand WM into medical waste and add synergies. Investments in automation and routing software protect margins, while renewable natural gas and recycling projects provide optionality.
Q2 reinforced that story. Landfill volumes were strong, margins in the core collection and disposal business expanded, and management confirmed synergies from the Stericycle acquisition are tracking.
Entry Around $200
WM is another one already well off its highs, now trading around $216 per share, or 30x forward earnings. This is a touch above its five-year average of 27x. Applying that multiple to 2025 EPS suggests a value of ~$200 per share, which is close to my DCF estimate of $194. While off its highs, at today’s price, the stock is still baking in successful execution, warranting a better entry point.
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4. Visa (V)
Every investor has likely swiped, tapped, or checked out online with a Visa card. The company runs the world’s largest payments network, moving more than $15 trillion annually across over 200 countries. Its asset-light model earns high-margin fees on every transaction.
Fundamentals Snapshot
- Revenue Growth (LTM YoY): 11.4% vs. 9.4% 5-yr CAGR
- EPS Growth (LTM YoY): 9.5% vs. 12.8% 5-year CAGR
- Gross Margin: 80.4% vs. 79.9% 5-yr avg
- Operating Margin: 67.0% vs. 66.3% 5-yr avg
- ROIC: ~48% vs. ~40% 5-yr avg
- Forward P/E (NTM): ~30x vs. ~27x 5-yr avg
Why Own the Company
Visa’s moat is built on network effects. With more than 4 billion cards issued and partnerships with nearly every major bank, the company is deeply embedded in the financial system. The company’s scale drives efficiency, supports pricing power, and makes disruption unlikely.
Visa’s margins are extraordinary. Gross margins are just over 80% and operating margins in the high 60s. The efficiency of Visa’s asset light model allows ROIC to have averaged over 40% in the past five years. Strong free cash flow funds reinvestment and steady buybacks.
Growth for Visa will continue to come from cross-border payments, where volumes are rising double digits. Other notable drivers include value-added services like fraud prevention and analytics, and secular adoption of digital and contactless payments, especially in emerging markets. Despite short-term swings in global travel and consumer spending, Visa is well-positioned to continue to compound earnings at a low double-digit pace.
Entry Point Around $300
Visa trades around $343 per share, or about 30× 2025 earnings. That is a premium to its 5-year average around 27x and reflects the market’s confidence in its growth runway. Applying that historic multiple suggests a fair value closer to $310, while my DCF finds a fair value around $300 per share. A pullback toward that range offers a more compelling entry.
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5. Procter & Gamble (PG)
Almost every household already buys something from Procter & Gamble, whether it’s Tide, Pampers, Gillette, or Crest. The company is a global leader in consumer staples, with products that span beauty, health, home, and baby care.
Fundamentals Snapshot
- Revenue Growth (LTM YoY): 0.3% vs. 3.5% 5-year CAGR
- EPS Growth (LTM YoY): 8.1% vs. 5.5% 5-year CAGR
- Gross Margin: 51.3% vs. 49.8% 5-year avg
- Operating Margin: 24.3% vs. 23.2% 5-year avg
- ROIC: 20% vs. ~19% 5-year avg
- Forward P/E (NTM): 23x vs. ~21x 5-year avg
Why Own the Company
PG’s moat comes from its portfolio of brands and the loyalty they command. Decades of marketing and R&D have secured dominant shelf space and pricing power, even during inflationary periods. Since more than 90% of sales come from its leading brands, demand is steady and recurring.
Returns on capital are strong, with ROIC around near 20%. And free cash flow supports a 69-year streak of dividend increases, plus steady buybacks. This is not a fast grower, but it is consistent with levers for growth remaining. Product innovation and higher-end offerings not only lift organic growth into the mid-single digits but also strengthen P&G’s brand moat against private labels and smaller competitors. Emerging markets like Asia and Latin America add further growth potential, while investments in automation and sustainability are helping margins inch higher.
In Q4 2025, the company demonstrated its stability in full year earnings with organic sales rising 2% and EPS growing 4%. This was despite headwinds in China and the Middle East.
Entry Point Below $150
PG share have struggled this year, down about 9%. The stock trades around $157 per share, or 23x forward earnings, slightly above its 5-year average of 21x. That premium reflects its consistency and dividend reliability, but a pullback below $150 would represent a better opportunity based on both history and my DCF estimate. At that level, PG’s growth profile would be better reflected, improving the total return opportunity and a margin of safety for long-term holders.
Final Thoughts
These five companies represent some of the highest quality compounding stocks in the market. Each possesses a wide moat, high returns on capital, and clear paths to sustained earnings growth. Their premium valuations today reflect the market’s confidence in their ability to compound over time, but buying at these levels risks modest returns if growth falters.
By keeping a watchlist now, however, you are prepared to act when the next pullback brings these names closer to their historical multiples. Whether it comes from a broad correction or sector-specific weakness, opportunities will appear. The key is to stay patient and disciplined so that when prices reset, you are ready to own the best stocks for long-term investing at levels that support stronger long-term returns.
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Want more? Check out other articles
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- Waste Management Stock: A Stable Compounder at a Premium Valuation
- Why Costco’s Stock Defies Valuation Logic
- PG Stock Analysis: Buy This Stalwart On Pullbacks
