Quality is Dead – Long Live Quality: Five Stocks for Your Buy List
November 4, 2025
2 min read
Quality stocks are out of favor, yet their businesses thrive. Reliable cash flows, strong brands, and steady growth make them undervalued — and more compelling today than at any time in recent memory.
Quality stocks: Academic research has long shown that high-quality businesses tend to outperform over the long run.
But there’s a catch: you must let time do the heavy lifting – and allow compound interest to work its quiet magic. Why do quality businesses outperform? Because to be one, a company must first survive. It needs a strong balance sheet, operate in a market with structural tailwinds to obtain pricing power and high margins, and grow its top and bottom lines mostly organically. Add an honest, competent management team that can steer the ship through whatever storm comes next, and you have the makings of something durable.
The cherry on top? Earnings stability and visibility.
That’s when you’re looking at a true quality business – the kind we like to call a compounding tortoise. Slow. Predictable. Relentless. And over time, unstoppable. But even tortoises have their problems. Two, in fact.
They tend to trade at higher valuations, because everyone knows they’re good.
They tend to underperform during market euphoria, when investors chase the shiny and forget the steady.
And funnily enough, we’re seeing both of those patterns invert right now.
A few of the world’s best quality businesses are trading at rather cheap valuations – precisely because they’ve been too boring for Mr. Market’s taste. In his current «dot-com déjà vu» mood, Mr. Market has been selling them off with a level of enthusiasm that would make 1999 blush.
Chart 1: High Quality Stocks’ Underperformance is at 1999 extremes
