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Last week I said that I was going to start working on my “Top 20 Stocks” article.
Well, this week we finally experienced some negative volatility in the markets, so this is potentially the perfect time to be thinking about these types of stocks.
Why, you ask?
Because, for the most part, the highest quality stocks in the world tend to trade with excessively high valuation premiums.
In other words, they’re usually expensive.
That makes them difficult to accumulate for someone like me, who prefers to buy stocks into weakness rather than into strength. I love a good discount. And while a ~3% sell-off in the broader markets isn’t going to create the sort of value that I’m looking for, it’s a step in the right direction.
If/when we experience a more significant sell-off, I have cash ready to deploy (roughly 10% of my portfolio) into the best-in-breed companies that I’ll be discussing today.
Thankfully, not all of the stocks on this list are expensive. A few are trading below my fair value estimates. But, the point of this list isn’t to highlight the best deals in the market, but instead, the very highest quality companies in the world.
Obviously, there is some subjectivity at play here. I base my quality scores on profitability metrics, near-term and long-term growth prospects (top and bottom-line), balance sheet health, and the strength of each company’s competitive moat.
It was harder than I thought to narrow the list down. The top 15 or so were fairly obvious to me, but the last 5 or so required a lot of difficult comparative analysis. With that being said, for the sake of my sanity, I decided not to take the time to actually rank them all 1-20. Doing so would have been like splitting hairs in many respects. Instead, I’m just providing an overall top-20 group.
I’m interested to hear which picks you all disagree with and which companies you’d substitute instead (discussion like this is my favorite part about articles like these; oftentimes, I come across undiscovered gems when hearing about others’ high conviction picks).
Enjoy!
Nick’s Top 20 Stocks: Brief Descriptions
Honestly, I think that most of these selections speak for themselves, so instead of writing providing in-depth information about each name, I’m going to briefly explain why each company made it onto my list (otherwise, this article would turn into a novella and I know that no one is here to read 10,000+ words).
S&P Global/Moody’s: These two companies operate as a duopoly in the global credit rating business. Their services are mission-critical as far as global commerce is concerned. The world is fueled by debt, and these two names are the glue that holds it altogether. Their brand names are top-notch, and they continue to show strong pricing power because their clients save money when paying for their services when financing debt.
Visa/Mastercard: Once again, a duopoly at the top of the global payment network space. They don’t carry consumer debt; instead, they operate a very capital light toll booth-like business model that I love. They offer some of the most consistently high margins and ROI figures in the world, clearly showing the strength of their moats. Furthermore, they benefit from the secular trend of the world moving towards a cashless society.
Apple/Meta/Alphabet: I believe that AI is going to change the world in profound ways, and these three companies are the best players in terms of consumer-facing AI. They each have long histories of bottom-line growth, showing their ability to navigate the rapidly evolving technology landscape. They also have some of the largest cash hoards in the world, allowing them to invest heavily in R&D as well as tactical M&A to fend off would-be competition and maintain the strength of their moats.
Nvidia: Speaking of AI, NVDA has established itself as the clear leader in the space due to its unparalleled hardware/software combination. Will its near 80% margins last forever? No. But, it would be silly not to list a company posting triple digit sales growth, nearly $15b in quarterly free cash flow, and gross margins above 75% on this list. I think KUDA provides NVDA a wide moat in the fastest growing industry in the world. This company will be a cash flow machine for years to come.
Amazon/Alphabet/Microsoft: The leaders in the cloud space, which continues to be a fast-growing, high margin business with long-term secular growth tailwinds.
Amazon/Alphabet/Meta: Leaders in the very high margin digital advertising industry (one of my favorite secular growth stories long-term).
Microsoft: An AAA-rated balance sheet and the leading player on the enterprise side of the AI space. This company offers a highly diversified business including blue chip operations in the aforementioned cloud and AI spaces, as well as SaaS operations, social media, gaming, digital search, digital advertising, cybersecurity, and more. MSFT has $80b+ in cash on hand, giving it the ability to buy into other growth areas as well.
Berkshire Hathaway: Berkshire is sitting on record cash holdings right now, and I like the upside that this M&A potential brings. In a nutshell, I view Berkshire as a one-stop-shop for high-quality industrial and financial assets…with a technology kicker due to its large AAPL equity stake. I wish they paid a dividend (the lack of a dividend is why I don’t own shares personally); however, the lack of strong shareholder returns doesn’t knock this blue chip off of my top 20 list.
Waste Management: This one is simple…no matter what the future holds, human society will always generate waste. And we’ll need someone to take care of that trash. Well, WM is the industry leader in that industry and one of the most reliable long-term growth stories (not hyper growth, mind you, but steady, reliable growth) that I can think of. This company has a long history of generous shareholder returns, a strong balance sheet, and the ability to continue to benefit from ongoing consolidation in the waste management space.
Canadian National Railway: When it comes to competitive moats, they don’t get much wider than the ones that class-1 railroads offer. Frankly, it would be impossible to recreate this business from scratch. CNI remains my favorite class-1 railroad so it made this list (though, I admit, several other players from this industry were strongly considered for this list due to their equally strong moats as well).
UnitedHealth Group/Marsh and McLennan: UNH and MMC aren’t an apples to apples comparison, but for the sake of expediency, I’m happy to group them up here (since they both operate in the broader insurance space). With regard to fundamentals, their historical growth figures speak for themselves. Both companies check all of the boxes that I’m looking for in terms of cash flows, balance sheet strength, and shareholder returns. I think both companies offer a wide moat, and it’s difficult for me to imagine scenarios where they’re disrupted by competition. These are relatively boring compounders…but they’re just that: compounders.
Accenture: Speaking of boring compounders, Accenture - the global leader in IT consulting - fits the bill. I think this company benefits from AI tailwinds as its massive client base from across the world looks to use new technological tools to become more efficient/profitable. Accenture doesn’t offer the same level of growth prospects that the tech stocks listed above do, but it has generated very reliable growth and provided strong shareholder returns for decades, and I don’t expect to see that change anytime soon.
Eli Lilly/Novo Nordisk: Anyone who knows my investing strategies knows that I’m wary of biopharma stocks because of the nature of the industry (inevitable patent cliffs and the in-depth scientific knowledge required to predict long-term growth in the space)...however, the power of these anti-obesity drugs in today’s society is too large to ignore. These companies have been successful for a longtime, but right now, they’re absolute cash cows because of the enormous TAMs associated with drugs in this space. Competition is rising (because of this TAM), but for now, I view LLY and NVO as a duopoly in the anti-obesity space and that alone makes them top-tier healthcare companies right now.
Booking Holdings: Speaking of TAMs, I’ll admit that the digital travel booking space doesn’t offer the same sort of long-term upside as many of the other stocks listed in this space. But, Booking is the clear leader in the space. It’s been growing like a weed for years and years (with no sign of stopping). And I think the stock benefits from durable long-term demand because no matter what sort of changes occurs as society advances forward, humans will always want to travel and experience new things. Looking at the chart below, you’ll see that Booking has produced the most reliable double-digit growth results of any company on the list during the last 20 years. These numbers, alongside ongoing double-digit EPS growth prospects, made it an easy stock to include on this list.
Costco: Without question, I believe that Costco is the clear best-in-breed winner in the retail space. I love this company’s business model (subscription membership sales on top of retail revenues). Costco’s long-term fundamental growth results speak for themselves. The company maintains an A-rated balance sheet. Costco generously returns cash to shareholders via regular special dividends. And, the fact that rising membership fees aren’t resulting in higher churn clearly shows the pricing power the company maintains (signifying a strong competitive moat).
| Company Name | Ticker Symbol | 20-year Annual EPS Growth Success Rate | 20-year 10%+ EPS Growth Success Rate | 20-year EPS Growth CAGR | S&P Credit Score | Morningstar Moat Rating |
| S&P Global | (SPGI) | 80% | 75% | 10.60% | n/a | Wide |
| Moody's | (MCO) | 85% | 75% | 10.30% | BBB+ | Wide |
| Visa | (V) | 14/15 years | 13/15 years | 19% (15-year CAGR) | AA- | Wide |
| Mastercard | (MA) | 16/17 years | 16/17 years | 18.6% (15-year CAGR) | A+ | Wide |
| Apple | (AAPL) | 85% | 75% | 38.30% | AA+ | Wide |
| Nvidia | (NVDA) | 70% | 65% | 32.20% | AA- | Wide |
| Microsoft | (MSFT) | 85% | 60% | 13.80% | AAA | Wide |
| Alphabet | (GOOGL) | 95% | 85% | 30.00% | AA+ | Wide |
| Amazon | (AMZN) | 65% | 65% | 25.40% | AA | Wide |
| Berkshire Hathaway | (BRK.B) | 60% | 40% | 8.80% | AA | Wide |
| Waste Management | (WM) | 80% | 50% | 7.90% | A- | Wide |
| Canadian National Railway | (CNI) | 80% | 60% | 9.80% | A- | Wide |
| UnitedHealth Group | (UNH) | 95% | 80% | 14.30% | A+ | Narrow |
| Marsh & McLennan | (MMC) | 90% | 55% | 17.60% | A- | Narrow |
| Meta Platforms | (META) | 9/11 years | 9/11 years | 32.5% (10 year CAGR) | AA- | Wide |
| Accenture | (ACN) | 95% | 60% | 12.10% | AA- | Wide |
| Eli Lilly | (LLY) | 75% | 45% | 8.20% | A+ | Wide |
| Novo Nordisk | (NVO) | 85% | 70% | 17.20% | AA- | Wide |
| Booking Holdings | (BKNG) | 95% | 90% | 29.80% | A- | Narrow |
| Costco | (COST) | 95% | 80% | 11.40% | A+ | Wide |
Shareholder and Total Returns
Although dividend safety and dividend growth are paramount to my personal portfolio management strategy, dividend related metrics weren’t top priorities for me when attempting to identify the highest quality stocks.
I was more focused on profitability and growth metrics…yet, as you’ll see in a moment, reliably growing dividends have been a product of these companies’ historic success.
18 out of the 20 stocks now pay dividends (only Amazon and Berkshire do not). And many of them have been growing those dividends for a decade+.
| Company Name | Ticker Symbol | Dividend Yield | 5-Year DGR | Annual Increase Streak |
| S&P Global | SPGI | 0.74% | 11.09% | 50 years |
| Moody's | MCO | 0.75% | 11.50% | 14 years |
| Visa | V | 0.76% | 15.93% | 15 years |
| Mastercard | MA | 0.59% | 15.51% | 12 years |
| Apple | AAPL | 0.44% | 5.56% | 10 years |
| Nvidia | NVDA | 0.03% | 6.91% | 1 year |
| Microsoft | MSFT | 0.68% | 10.23% | 19 years |
| Alphabet | GOOGL | 0.44% | n/a | 1 year |
| Amazon | AMZN | 0.00% | n/a | n/a |
| Berkshire Hathaway | BRK.B | 0.00% | n/a | n/a |
| Waste Management | WM | 1.34% | 8.21% | 20 years |
| Canadian National Railway | CNI | 1.95% | 9.98% | 29 years |
| UnitedHealth Group | UNH | 1.47% | 15.41% | 14 years |
| Marsh & McLennan | MMC | 1.29% | 17.93% | 14 years |
| Meta Platforms | META | 0.42% | n/a | 1 year |
| Accenture | ACN | 1.58% | 12.06% | 19 years |
| Eli Lilly | LLY | 0.57% | 15.01% | 10 years |
| Novo Nordisk | NVO | 1.37% | 17.15% | 4 years |
| Booking Holdings | BKNG | 0.44% | n/a | 1 year |
| Costco | COST | 0.55% | 12.33% | 19 years |
For years, I’ve been saying that dividend growth investing is not about owning a bunch of stodgy old cash cows who’re done growing. On the contrary. Dividend growth investing is about owning the best companies in the world. They’re the ones who have the fundamentals that can support ongoing sustainable dividend growth.
There are people who find themselves constantly chasing yield or who feel the need to admonish dividend-centric investing because of the false narrative that they don’t matter, that they destroy capital, and that dividend investments are doomed to underperform. But, I hope my personal portfolio…as well as the long-term performance of the stocks on this list clearly show that dividend growth investors can truly have their cake and eat it too when it comes to owning stocks that pay dividends, grow dividends, and post market-beating capital gains/total returns.
| Company Name | Ticker Symbol | 1-year Price Return | 5-year Price Return | 10-year Price Return |
| S&P Global | SPGI | 13.56% | 99.99% | 486.10% |
| Moody's | MCO | 22.97% | 120.09% | 382.58% |
| Visa | V | 9.96% | 48.10% | 394.41% |
| Mastercard | MA | 11.40% | 60.99% | 485.73% |
| Apple | AAPL | 14.97% | 342.88% | 818.64% |
| Nvidia | NVDA | 150.50% | 2700.52% | 26416.02% |
| Microsoft | MSFT | 22.50% | 222.80% | 896.67% |
| Alphabet | GOOGL | 43.58% | 209.77% | 492.50% |
| Amazon | AMZN | 38.33% | 85.80% | 1060.03% |
| Berkshire Hathaway | BRK.B | 27.94% | 112.43% | 244.63% |
| Waste Management | WM | 33.91% | 89.12% | 406.49% |
| Canadian National Railway | CNI | 4.75% | 32.73% | 79.16% |
| UnitedHealth Group | UNH | 12.87% | 116.55% | 565% |
| Marsh & McLennan | MMC | 15.58% | 114.08% | 322.75% |
| Meta Platforms | META | 52.49% | 130.10% | 528.50% |
| Accenture | ACN | 1.76% | 68.41% | 305.08% |
| Eli Lilly | LLY | 88.14% | 735.88% | 1337.75% |
| Novo Nordisk | NVO | 62.23% | 460.98% | 489.94% |
| Booking Holdings | BKNG | 31.83% | 108.42% | 224.75% |
| Costco | COST | 55.07% | 211.39% | 712.17% |
Conclusion
Hopefully, the figures above can assuage some fear (if not all of it) that you might experience when the market begins to sell-off.
I get it, red numbers on the brokerage screen are no fun. But, buying best-in-breed companies like this on dips and holding them over the long-term has always been a recipe for success in the market.
Therefore, I welcome more selling.
I’ve planned accordingly, and I have dry powder ready to spend.
If/when the sell-off that we saw last week gets worse, these are the types of stocks that I’ll be looking to buy.
These are the types of all-weather companies with strong moats, rock-solid balance sheets, and secular growth tailwinds that I can rest easy with moving forward (regardless of the macroeconomic environment).
These are the types of stocks that will enable my family and I to experience true financial freedom and therefore, I look forward to moments when I can accumulate more of them into weakness.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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