Pieter Slegers — 8 Stocks Quality Investors Are Buying

Zoetis makes medicines, vaccines and diagnostic tests for animals — both farm livestock and household pets. It is the largest company in that market. The demand behind it is unusually durable: people keep feeding themselves, and pet owners increasingly treat animals as family members and pay for their healthcare accordingly.

This issue mentions it twice — several of the tracked quality funds hold it in small size, and it was one of the eight names they added to last quarter — but the sentence that matters is Compounding Quality's own: they recently bought it for the portfolio and think it is "currently too cheap." That is the only outright house opinion in an article otherwise made of other people's filings.

Constellation buys hundreds of tiny software companies that run one specific industry's operations — golf clubs, funeral homes, transit authorities — and never sells them. The software is dull, cheap relative to the customer's budget, and impossible to rip out without breaking the business, so the revenue keeps arriving.

The signal here is who is buying it. Mohnish Pabrai is a deep-value investor: he normally buys statistically cheap, unloved assets, not high-quality compounders. His adding heavily to Constellation is therefore read as a statement about price rather than style — "Mohnish Pabrai thinks Constellation Software is way too cheap." That is a useful kind of evidence: an investor stepping outside his usual habitat is telling you something about valuation, not about taste.

ADP runs payroll and HR for other companies. Two things make that a good business. First, it is extremely sticky: once a company has handed over its payroll and its tax filings, moving to a competitor risks paying people late or filing taxes wrong, so almost nobody moves. Second, ADP briefly holds the wages and tax money in transit — billions of dollars — and earns interest on it while it sits there.

It also needs almost no money to run: capital spending is under 2% of sales, so nearly all the profit is genuinely free cash. Three of the tracked quality funds own it, led by Fundsmith at 6.3% of its portfolio.

Booking owns Booking.com, Agoda and OpenTable and takes a cut of every hotel room, flight and restaurant table booked through them. Crucially it owns no hotels — as the post puts it, "they own the traffic." That makes it capital-light: growth costs it almost nothing in buildings or equipment.

The self-reinforcing part is the two-sided loop: more hotels listed makes the site more useful to travellers, and more travellers makes the site more necessary to hotels. The stock sits at its lowest forward earnings multiple since 2020 because investors fear AI assistants will book travel directly and cut Booking out. The post's answer is simply that the network effect is too strong for that — an AI still has to find the rooms somewhere.

MercadoLibre is Latin America's dominant online marketplace, and Mercado Pago is the payments and credit business built on top of it. It earns commissions on goods sold and fees and interest on the money moving through the payment system.

The marketplace has the same buyer-seller loop as any large platform — sellers go where the customers are, buyers go where the selection is. What makes it harder to attack in this particular region is the physical and financial plumbing it built itself: its own delivery network and its own payment rails, in markets where shipping and payments "have always been a nightmare." A rival needs both, not just a website.

Fiserv processes card payments for merchants and sells banks the software that runs their customer accounts. That used to be a protected position — the post calls it "the only toll bridge in town." Modern rivals built after the internet, Stripe and Adyen among them, now compete for the same merchants with cleaner technology.

The second blow came from inside: a new chief executive, Michael Lyons, replaced the old 10% revenue-growth target with 3.5–4%. That is management confirming the competitive story in its own numbers, and it is why quality investors such as François Rochon sold. Note the oddity this issue prints without reconciling — while quality funds were selling, the broader superinvestor cohort was buying it heavily enough to rank it top-seven on the quarter's aggregate purchase list.

Booz Allen sells consulting and technology work to US government departments — defence, intelligence, civil agencies. For years that was about as predictable as revenue gets: long contracts, a customer that cannot go bankrupt.

Then the DOGE cost-cutting drive started cancelling federal contracts, and 70% of Booz Allen's revenue comes from exactly those contracts. The problem quality investors have is not that profits fell; it is that they can no longer be forecast. As the post puts it, the change "killed the revenue certainty" and left the company "in the midst of a political battle" — the one input a long-term owner cannot model.

Credit Acceptance lends to car buyers with poor credit through a network of dealerships, earning interest from borrowers and fees from the dealers. In that business the whole edge is being better than rivals at judging who will repay — and at the technology that makes those judgements.

François Rochon of Giverny Capital exited the position entirely, and his stated reason is the point of the section: the company "has fallen behind other leading subprime lenders in both technology and underwriting sophistication and may have a hard time catching up." The distinction the post draws is worth keeping: a temporary problem lets you buy a good business cheaply, but permanently falling behind competitors is a different fact, and cheapness does not fix it.