Focus on companies with superior fundamentals and lasting competitive advantages
Quality investing is about owning the best companies in the market — businesses with rock-solid fundamentals, consistent profitability, strong balance sheets, and competitive advantages that protect them from rivals. These are companies you could hold forever and sleep well at night.
Think of companies like Microsoft, Visa, or Johnson & Johnson. They're not necessarily the cheapest or fastest-growing stocks, but they have something more valuable: staying power. They generate reliable profits, maintain strong margins, return cash to shareholders, and survive market downturns better than most.
Quality investing prioritizes business excellence over bargain hunting. The idea is simple: great companies may look expensive at times, but their superior returns on capital and predictable earnings often make them worth the premium. Over decades, quality compounds into wealth.
ROE above 15% consistently shows management's ability to generate strong returns from shareholder capital. Great businesses compound wealth efficiently.
Low debt-to-equity ratios (under 0.5) and high current ratios provide financial cushion during downturns. Quality companies don't rely on leverage.
Net profit margins above 10% indicate pricing power and operational efficiency. These companies keep more of every dollar they earn.
Steady, predictable earnings growth over 5-10 years. No wild swings or frequent losses. Reliability is key to quality.
Durable competitive advantages like brand power, network effects, patents, or switching costs that keep competitors at bay.
Strong, consistent free cash flow allows companies to invest in growth, pay dividends, buy back shares, and weather storms.
Measures profit generated per dollar of shareholder equity
Percentage of revenue retained as profit after all expenses
Total debt relative to shareholder equity
Cash available after capital expenditures
Consistency of earnings over time
Our scoring system identifies companies with exceptional business quality. High scores indicate:
Leading software platform with subscription model
ROE
42%
Profit Margin
28%
Debt/Equity
0.1
FCF Growth
+18%
Dominant market position, recurring revenue, minimal debt, excellent margins
Global pharma with strong patent portfolio
ROE
24%
Profit Margin
19%
Debt/Equity
0.3
FCF Growth
+12%
Diversified product line, regulatory moat, consistent cash flow, low debt
Premium brand with global distribution
ROE
31%
Profit Margin
15%
Debt/Equity
0.4
FCF Growth
+9%
Strong brand loyalty, pricing power, efficient operations, stable earnings
Value investors hunt for bargains (low P/E, P/B). Quality investors pay fair prices for superior businesses. Quality companies may look expensive but deliver better long-term returns.
Growth investors chase rapid expansion, often accepting losses or high valuations. Quality investors want growth AND profitability AND financial strength.
Dividend strategies prioritize yield. Quality focuses on business fundamentals first, dividends second. Many quality stocks pay dividends, but it's not the primary criterion.
See today's highest-scoring quality stocks with superior fundamentals and competitive moats.
View Today's Quality Stocks