Title: Best Buys: May 2026 Show: Compounding Quality (Substack, paid post — compoundingquality.net) Guest: Pieter Slegers / Team Compounding Quality (author; byline "Compounding Quality") Date: 2026-05-03 URL: https://www.compoundingquality.net/p/best-buys-may-2026 Length: written post — no timestamps Note: Paid-subscriber post captured via Stephen's logged-in session. Body text verbatim; UI chrome removed. Fiscal.ai and investor-relations chart panels noted inline as [Image — ...]. The two monthly performance tables are published as images and are transcribed below as [Table image — ...] blocks; note that both graphics are titled "March 2026" although the text discusses April 2026 — the label appears not to have been updated. The issue is written from Omaha (the Berkshire AGM weekend).
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.
April 2026
The S&P 500 rose by 9.7% in April.
[Image — S&P 500, last month. Source: Fiscal.ai]
Investors are greedy today according to the Fear & Greed Index:
[Image — CNN Fear & Greed Index: Greed]
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:
[Table image — "Performance — Worst Performers March 2026" (label as published): Epam Systems -15.9% Costar Group -14.2% Medpace Holdings -12.8% Brown & Brown -7.7% Kelly Partners Group -7.2%]
Best performers
These stocks did well over the past month:
[Table image — "Performance — Best Performers March 2026" (label as published): Arista Networks +40.7% Insperity +31.5% Novo Nordisk +17.9% KKR +12.8% QXO +10.2%]
Spotlight: QXO, Inc. ($QXO)
How Does The Company Make Money?
QXO is a distributor of building products.
They act as the middleman between manufacturers and contractors.
The company is a serial acquirer. They recently acquired TopBuild.
As a result, they are now a clear market leader:
#1 in insulation
#2 in roofing
#1 in waterproofing
#1 or #2 in the lumber and building materials sector
[Image — QXO market positions. Source: QXO Investor Relations]
Why does it deserve to be in the spotlight?
We can't talk about QXO without talking about its founder.
Brad Jacobs is widely considered one of the most successful serial consolidators in business history.
He founded eight separate billion-dollar companies and wrote two must read books:
How to make a few billion dollars
How to make a few extra billion dollars
(Watch out. If you're reading these books in public, people look at you strangely. I speak from personal experience)
His strategy is a three-step formula.
He used it over and over to build dominant companies in different industries.
Identify a Fragmented, Analog Industry: Jacobs looks for large markets with thousands of small, local players using outdated technology.
Buy the Anchors: He raises massive amounts of capital upfront to buy the biggest and most important players in the industry. This gives him immediate scale and purchasing power that no local competitor can match.
Use Tech to Become Efficient: Once he owns the companies, he puts teams into place to get rid of inefficient processes and replace them with high-tech solutions. At XPO, he used AI to optimize truck routes, at QXO, he is using it to centralize pricing and inventory across 1,150+ locations.
The track record of Brad Jacobs is phenomenal:
United Waste Systems (1989): Sold it for $2.5 billion
United Rentals (1997): Built the world's largest equipment rental company from scratch
XPO Logistics (2011): Grew revenue from $175 million to $15 billion
QXO is his latest project.
He is applying his successful playbook to the $800 billion fragmented building products industry.
In the past 12 months alone, QXO has spent over $30 billion on acquisitions.
The TopBuild Acquisition
The biggest catalyst for QXO is the $17 billion acquisition of TopBuild (BLD).
The acquisition was announced in April 2026.
TopBuild is the largest distributor and installer of insulation and related building products in North America
I know the company well as I used to follow it when I was involved in the daily management of a Climate Fund.
The stock is up +444% since 2020.
It's Revenue and EPS grew very attractively too:
[Image — TopBuild revenue and EPS. Source: Fiscal.ai]
Why this deal matters:
Market Leadership: It makes QXO the #2 largest building products distributor in North America
Scale: The merger adds $6.2 billion in annual revenue and over 400 locations
Cost Savings: Management expects to realize $300 million in annual synergies by 2030 through scaled procurement and logistics
[Image — QXO/TopBuild deal rationale. Source: QXO Investor Relations]
Another important thing about TopBuild?
It has a much higher margin than QXO.
Before this acquisition, QXO had an Adjusted EBITDA margin of around 8%.
TopBuild has margins closer to 18%.
[Image — QXO vs TopBuild margins. Source: Fiscal.ai]
QXO estimates that the combined company will have EBITDA margins of around 12%.
[Image — combined margin bridge. Source: QXO Investor Relations]
QXO is now the #1 or #2 player in almost every category it touches.
Brad Jacobs added another $6.2 billion in revenue with this acquisition.
On top of that, he bought market dominance and a wider moat.
We love businesses that sell essential products with high switching costs led by world-class management.
Best Buys April 2026
Let's dive into our five favorite buys for the month.
Please note that the companies in Our Portfolio are not mentioned here.
We love all companies in Our Portfolio right now.
5. Fair Isaac Corporation ($FICO)
How does Fair Isaac make money?
FICO licenses their proprietary credit scoring algorithm to major credit bureaus (Equifax, Experian, and TransUnion).
FICO's is down over 55% (!) from its peak:
[Image — FICO drawdown from peak. Source: Fiscal.ai]
What happened?
In April, the The Federal Housing Finance Agency (FHFA) announced they are officially moving forward with VantageScore 4.0.
It will be used as an alternative to FICO for mortgage underwriting.
Why this drop can be a long-term opportunity (and not a disaster):
Even if lenders add VantageScore, they'll still pull FICO alongside it. In lending, more data beats different data
Regulations and internal risk models are deeply tied to FICO. Switching to VantageScore means a multi-year infrastructure overhaul most banks won't risk
FICO's price hikes are negligible on a $500K mortgage. Lenders care about predictive accuracy, and FICO 10T is still the gold standard
FICO is now very close to the lowest Forward P/E we've seen in a decade.
[Image — FICO forward PE, 10-year range. Source: Fiscal.ai]
Earlier this week, FICO reported great results.
It seems like the investment thesis is not broken after all.
4. Hermes ($RMS)
How does Hermes make money?
Hermes is the king of luxury. They are known for their Birkin and Kelly bags.
The French company uses scarcity as a marketing tool.
They intentionally limit their supply to sell at very high prices.
Hermes operates in three main segments:
Leather Goods and Saddlery (~43% of revenue): This is the biggest segment and includes the iconic Birkin and Kelly bags
Ready-to-wear and Accessories (~28%): High-end clothing and footwear
Other (Silk, Watches, Perfume, etc. ~ 29%): Complementary luxury items
[Image — Hermes revenue by segment. Source: Fiscal.ai]
The financial performance is amazing.
In 2025, Hermes grew its revenue to EUR 16 billion (up 9% at constant rates) with an operating margin of 41%.
Why does it deserve to be in the spotlight?
Hermes is the ultimate Veblen Good.
This means that as the price goes up, the demand increases because the prestige grows.
You cannot simply walk into a store and buy a Birkin bag. Hermes makes you put your name on a waitlist
Hermes owns its supply chain, from the tanneries to the workshops. This lets them completely control quality in a way competitors can't.
Hermes caters to the ultra-wealthy. During downturns, their spending tends to hold up better than most consumers. That's why Hermes is often the last luxury brand to feel a slowdown and the first to recover.
[Image — Hermes valuation. Source: Fiscal.ai]
Now let's dive into the top 3.
3. MSCI ($MSCI)
How does MSCI make money?
MSCI provides financial data and creates indexes for international markets.
They make money in two ways:
Asset-based fees: Every time an investor buys an ETF linked to an MSCI index (like the MSCI World or ACWI), MSCI collects a small fee based on the Assets Under Management (AUM)
Subscriptions: They sell high-margin data and analytics software to banks and asset managers
[Image — MSCI revenue split. Source: Fiscal.ai]
MSCI continues to be the Toll Bridge of the global investment industry.
In Q1 2026, revenue jumped to $850.8 million (up from $745.8M last year)
The stock has seen some pressure as investors worry that AI will allow firms to build their own indices
Creating an index is easy, but creating an index that every pension fund and bank in the world trusts and has integrated into their software for 30 years is nearly impossible
MSCI is also a Cannibal Stock.
They continue to use their massive free cash flow to buy back shares, meaning your ownership of the business just gets bigger and bigger.
[Image — MSCI share count. Source: Fiscal.ai]
2. 3i Group ($III)
How does 3i Group make money?
3i Group is a UK-based investment company. It's an investment holding.
They invest their own balance sheet into mid-market companies.
3i Group is essentially an investment in Action, the European discount retailer.
While Action grew sales to EUR 16 billion in 2025, the stock recently dropped nearly 50% from its highs.
There are two main reasons for the drop:
Growth in France, its second-largest market slowed to 2%, creating fears of saturation in Europe
3i announced a EUR 400M plan to bring Action to the United States (targeting the Southeast in late 2027). Investors are worried that Action will become the next "Lidl" or "Tesco" and fail to catch on in America
Action's "Scale Economies Shared" model is incredibly resilient.
It's exactly the same model that made companies like Amazon and Costco so successful.
[Image — 3i Group / Action. Source: Fiscal.ai]
Even with the US risk, the stock is currently trading at a clear discount to its Net Asset Value (NAV).
You are getting the European business at a bargain, and the US expansion is essentially a free call option.
1. KKR & Co. Inc ($KKR)
How does KKR make money?
KKR is an American investment company (Private Equity). They use money from big clients (like pension funds) to buy and grow other companies.
They also have an insurance business.
KKR proves that size is a moat in private equity.
They now have nearly $750 billion in Assets Under Management.
[Image — KKR AUM growth. Source: Fiscal.ai]
While smaller firms struggle to raise capital in a high-interest-rate environment, KKR just keeps growing.
Record Capital: In 2025, they raised a record $129 billion in new capital
Dry Powder: They have roughly $126 billion in cash waiting to be deployed. In a market where assets are getting cheaper, KKR is ready to buy
Insider Alignment: Despite the stock being down ~50% from its highs, insiders have been aggressively buying shares. There are lots of reasons for insiders to sell, but there's only one reason they buy. The stock is cheap
[Image — KKR insider buying. Source: Fiscal.ai]
Conclusion
That's it for today.
Here are the five companies we covered:
Fair Isaac (FICO): The essential toll-bridge for the American credit scoring system
Hermes (RMS): A family-controlled, ultra-luxury company that uses high intentional scarcity to drive demand
MSCI (MSCI): The global gold standard for financial indices and data analytics
3i Group (III): A UK-based investment company with the European retail giant Action as its crown jewel
KKR (KKR): An alternative asset manager with permanent insurance capital
Everything in life compounds Team Compounding Quality
Book
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Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data
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