Title: Best Buys February 2026 — Top 5 stocks right now (software special) Show: Compounding Quality (compoundingquality.net — Pieter Slegers' quality-investing newsletter) Guest: Pieter Slegers (author) Date: 2026-FEB-08 URL: https://www.compoundingquality.net/p/best-buys-february-2026 Length: written post (paid) — no timestamps Note: Verbatim article text captured via logged-in session; page chrome (like/share counts, nav) removed. Charts referenced as "Source: Fiscal.ai" are images not reproduced here.
By monthly tradition, you'll get an update on our Best Buys of the month.
What's going on in the markets? And what are our favorite stocks?
Let's get a little bit wiser today.
January 2026
The S&P 500 was up 1.3% in January.
Investors are 'Neutral' today according to the Fear & Greed Index.
Best & Worst Performers
This overview shows you the best and worst performers in our investable universe.
Worst performers
The cheaper we can buy great companies, the better.
Here are the worst performers of the past month:
Do you know what Constellation Software, Topicus.com, and Adobe have in common?
They're all software companies.
I think the market offers great opportunities in this segment today.
Best performers
These stocks did well over the past month.
Now let's dive into a very interesting topic:
Should investors in software companies be worried about AI? Or is it a gift?
The impact of AI on software companies
"In the short run, the stock market is a voting machine, but in the long run, it is a weighing machine." - Benjamin Graham
Right now, the market is terrified about Artificial Intelligence for software companies.
The narrative is simple:
"AI will replace traditional software. Why pay for a Salesforce or Adobe subscription when a lean AI agent can do it for free?"
This fear has caused the stock price of many software companies to drop.
The Nasdaq 100 is flirting with record highs… while software companies like ServiceNow, Adobe, and Constellation Software are trading at levels we haven't seen in years.
Two Sides of Disruption
AI will certainly disrupt some software companies.
If a company's only value is completing a basic task (like simple data entry or basic reporting), it might be in trouble.
But for most Quality Stocks, AI is not a threat, it's a tool that can make them better.
Quality Always Wins
A Quality Company has a moat that AI cannot easily disrupt.
Proprietary Data: AI is only as good as the data it trains on. Companies like ADP and Intuit have decades of specialized, private data that competitors don't.
High Switching Costs: Replacing a critical system is incredibly painful for large businesses. Most CFOs won't risk their entire operation to save a few dollars.
Operating Leverage: Quality companies are using AI in their own products, making their products better and cheaper.
Want proof that software can be very difficult to replace?
Software from 30 years ago is still being used in some places!
Below is an example of a tool from Constellation Software.
Opportunities in Software?
Charlie Munger used to tell us that the big money is in the waiting.
When a narrative like "AI will disrupt every software company" takes over, the market panics.
This creates an interesting opportunity to buy companies with high ROIC, strong free cash flow, and dominant market positions at a significant discount to their intrinsic value.
Always remember that stock prices eventually follow earnings.
We have been looking for high quality software businesses that are currently being punished by the market.
That's why we focus solely on software companies in this Best Buys article.
Best Buys February 2026
Now, let's dive into our five favorite stocks for February 2026.
5. Adobe ($ADBE)
How does Adobe make money?
Adobe makes money primarily through a cloud-based subscription model. It is the global leader in digital creative and document software, generating the vast majority of its revenue from recurring fees for products like Photoshop, Acrobat, and the Adobe Experience Cloud.
Two things keep declining with Adobe.
The first thing? The share price (a bad thing).
Second? The number of shares outstanding (a good thing).
This means Adobe is buying back its own shares at cheaper and cheaper valuation levels.
Something that hasn't declined? Adobe's revenue and earnings.
This creates a very interesting set up.
The market thinks AI will replace Adobe's software in the future.
I think that's unlikely.
Here are a few reasons why:
High Switching Costs: Professionals are trained on Adobe products in school, and companies have been using their products for years. Switching to a competitor would mean retraining entire teams and rebuilding workflows from scratch.
The Industry Standard: Adobe created the PDF and the standard file formats for the creative world. To collaborate with anyone else in the industry, you have to use Adobe products.
AI Integration: By embedding its Firefly AI directly into existing tools, Adobe ensures users don't need to look elsewhere for new technology.
In December, Adobe said the number of AI credits used has grown by 3x from the quarter before.
The market thinks AI will disrupt Adobe's business, but right now it looks like AI could be helping it.
Right now, Adobe is buying back almost 9% of its shares every single year.
It's a very interesting Cannibal Stock.
4. Fortinet ($FTNT)
How does Fortinet make money?
Fortinet makes money by selling cybersecurity products and services that protect networks, users, and cloud environments from cyberattacks. Their customers range from small businesses to large enterprises and governments.
Fortinet is another company that's seen a significant drawdown in its stock price recently.
The selling pressure is caused by the following:
Fears of AI disruption in security software.
Reports that China has banned foreign security software from being used in certain sectors.
But Fortinet is still an amazing company.
It was founded in 2000 by brothers Ken Xie (CEO) and Michael Xie (CTO).
Together, they still own 15% of the company.
Cybersecurity is very important for every business out there.
Which is why Fortinet just keeps growing its revenue and earnings.
With the continued decline in its share price, Fortinet is trading at attractive valuation levels.
Now let's dive into the top 3.
3. Automatic Data Processing ($ADP)
How does Automatic Data Processing make money?
Automatic Data Processing makes money by providing cloud-based payroll, human resources, and tax compliance services to over one million businesses. It makes money through recurring subscription fees and the interest earned on the billions of dollars in client funds it holds during the payroll process.
ADP serves over 1.1 million clients and pays 1 in 6 workers in the U.S.
The average client has been with them for 13 years, and their retention rate is 92.1%.
Their revenue is incredibly sticky.
You can split the company into three primary revenue engines:
HCM Technology & Employer Services (63.7% of Revenue): Software and services for payroll, tax filing, and talent management.
PEO Services (30.7% of Revenue): ADP pools employees from different small-to-mid-sized businesses together and buys benefits and insurance at lower cost.
Interest on Client Funds (5.6% of Revenue): ADP handles roughly $3.3 trillion in client funds annually. In the short window between collecting the money and paying it out, they earn interest on it.
Maria Black
The leadership of Maria Black is central to ADP's modern evolution.
She became CEO in early 2023 but has been with ADP since 1996.
She rose through the ranks from sales and operations to President, giving her a deep understanding of the front-line needs of clients.
Her focus is currently on "ADP Assist," embedding Generative AI across their massive dataset to automate complex compliance tasks, further deepening that competitive moat.
Speaking of AI, here's why I think AI is unlikely to disrupt ADP's business.
Data: ADP pays 1 in 6 workers in the U.S. This gives them the world's most accurate, real-time dataset on wages and taxes.
No Room for Error: If AI misses a tax law or miscalculates a paycheck, the result is a lawsuit or a federal penalty.
High Switching Costs: Moving a company's entire payroll history to a new tool has huge risk. Most CFOs won't risk the company's stability for slight cost savings.
Internal Efficiency: ADP is using AI (like ADP Assist) to automate their own back-office tasks and catch errors faster. This expands their profit margins while making the product even stickier for the customer.
2. Topicus ($TOI.V)
How does Topicus make money?
Topicus is a spin-off from Constellation Software. It's a serial acquirer focusing on Vertical Market Software (VMS) companies in Europe.
Topicus is an Owner-Operator company that buys small software companies.
Just like the other companies in this list, Topicus has seen its stock price fall because of AI concerns.
Topicus is the first Vertical Market Software (VMS) company on the list.
Software companies can be thought of as either Horizontal or Vertical Market companies.
Horizontal software serves many different industries with broad, general tools (like Microsoft Excel or Slack).
Vertical software is custom-built for one specific industry and its unique needs (software designed only for dental offices or law firms for example).
Because the products of VMS companies are so tailored to specific niches (e.g., healthcare or construction), they tend to have:
Low Churn: Customers stay because they can't run their business without it.
High Pricing Power: Companies can easily charge more because the software is so important but only a small part of the budget.
Deep Relationships: Making tools that fit a customer's needs perfectly keeps them loyal for years.
You can see how powerful this is when we look at the revenue split of Topicus.
70% of their revenue is Maintenance & Other Recurring Revenue.
VMS systems are very sticky.
That software from 30 years ago that I showed you that's still being used? It's an example of Vertical Market Software.
Robin van Poelje
Robin van Poelje is the CEO of Topicus since 2021.
He is the founder of Total Specific Solutions, an operating group of Topicus.
Together with his wife's family, they own 30.9% of the company. The family has a very long-term mindset:
"We don't think in terms of five years, we think in terms of generations. Our focus is on building companies that can reinvest their cash flow in new growth opportunities and thus achieve a leadership position in their market segment. We call them compounders. Building such a compounder is difficult, it is time consuming. But we have plenty of time." - Tsjitske Strikwerda, Robin van Poelje's wife
Software companies are currently priced low, and Topicus has a long-term strategy.
That's a good recipe for attractive returns if you ask me.
1. Constellation Software ($CSU)
How does Constellation Software make money?
Constellation Software is a serial acquirer that buys and manages Vertical Market Software (VMS) companies across dozens of different industries worldwide.
Constellation Software is the best serial acquirer in the world.
Everything mentioned about Topicus — the sticky nature of Vertical Market Software (VMS), the low churn, the high pricing power — are taken straight from the Constellation Software playbook.
Topicus is a spin-off from its parent company Constellation Software.
While most companies try to find one big idea, Constellation has spent decades on small ideas.
They own over 1,000 VMS companies across 100+ different niche markets.
It doesn't matter if it's software for public transit in London, golf course management in Florida, library systems in Canada.
If it's critical and boring, Constellation wants to own it.
Since its IPO, Constellation has returned more than 20,000% to shareholders.
Most companies with returns this high see at least one major drawdown.
Until now, Constellation had never seen a drawdown of more than 25%.
Guess what? The current drawdown equals over 50%.
This could provide massive opportunities for long-term investors like ourselves.
Constellation Software, just like Topicus, has been punished by the market due to worries about AI.
At the same time, the founder and CEO Mark Leonard has retired.
While we would have preferred Mark Leonard to stay, he's left Constellation Software in the safest possible hands: Mark Miller.
Miller joined in 1995 when his company, Trapeze, became CSI's first-ever acquisition.
He has since scaled Volaris (CSI's largest group) to 200+ deals and chaired the Lumine Group spinoff.
As the long-time COO he knows the company better than anyone.
Miller owns approximately $700 million in CSI stock and recently bought even more shares on the open market.
Leonard remains on the Board of Directors.
Constellation Software is currently trading well below historical valuation levels.
It's an amazing company that I think the market is way too negative on.
Conclusion
That's it for today.
Here are the five companies we covered:
Adobe ($ADBE): The industry standard for creatives. High switching costs and the rapid integration of Firefly AI makes it a durable share cannibal.
Fortinet ($FTNT): A digital fortress in cybersecurity. Despite geopolitical noise, it's still run by the founders and has high-margin recurring revenue.
Automatic Data Processing ($ADP): The king of payroll, with a massive dataset and ADP Assist AI, they make sure that 1 in 6 U.S. workers get paid accurately and on time.
Topicus ($TOI.V): A spin-off from Constellation focusing on European VMS companies, run by leadership who thinks in generations.
Constellation Software ($CSU): The world's best serial acquirer. With over 1,000 boring but essential software companies, it remains the ultimate compounding machine.
Everything in life compounds Pieter (Compounding Quality)
Book: Order your copy of The Art of Quality Investing here
Used sources: Interactive Brokers (portfolio data and executing all transactions); Fiscal.ai (financial data)