Three Quality Companies to Buy Today
Each of these companies is entering a new phase of margin expansion and capital discipline, yet their stock prices remain below what their long-term cash flows and strategic positioning would suggest.
Dear readers,
Welcome back to the Quality Equities newsletter.
The US stock market ended last week with mixed results as investors weighed strong economic data against shifting expectations for Federal Reserve policy. The S&P 500 and Nasdaq edged higher, supported by continued enthusiasm for AI and tech stocks, while the Dow Jones lagged behind due to weakness in cyclical sectors like energy and financials.
A stronger-than-expected May jobs report, showing 272,000 new jobs and rising wage growth, cast doubt on the likelihood of a July rate cut and pushed Treasury yields higher. At the same time, the ISM Services Index surprised to the upside, reinforcing the narrative of a resilient US economy. The European Central Bank cut rates for the first time in years, underscoring a growing divergence in global central bank policy.
Looking ahead, all eyes are on next Wednesday’s inflation report and Federal Reserve meeting, which will be critical in shaping the outlook for interest rates in the second half of the year. And in a market gripped by headlines about artificial intelligence, rate cuts, and cyclical rotations, long-term investors would be wise not to lose sight of the enduring compounders quietly building durable value.
Among the strongest names in this group are AMZN 0.00%↑ Amazon, UBER 0.00%↑ Uber, and CRM 0.00%↑ Salesforce. These three companies are modern platform businesses that not only dominate their respective industries, but also benefit from powerful network effects, structural tailwinds, and improving profitability.
Each of these companies is entering a new phase of margin expansion and capital discipline, yet their stock prices remain below what their long-term cash flows and strategic positioning would suggest. For investors focused on quality, scale, and cash generation, these three businesses stand out as compelling buys today.
Amazon
First up is Amazon. Amazon has long been synonymous with e-commerce, but it is increasingly more appropriate to think of it as a digital infrastructure company with several businesses under one roof. The most valuable of these remains Amazon Web Services (AWS), its cloud computing division, which serves as the backbone of the modern internet. Despite some cyclical softness in enterprise IT budgets, AWS remains a high-margin, high-retention business with significant pricing power and scale economies. It is deeply embedded in critical infrastructure for startups and global enterprises alike.
Meanwhile, Amazon’s North American retail business has undergone a dramatic transformation. After years of relentless investment in logistics and fulfillment (including robotics), Amazon has emerged with a vertically integrated retail operation that few can rival. Under CEO Andy Jassy’s leadership, the company has shifted from a growth-at-all-costs mindset to disciplined expansion, with a sharp focus on profitability and efficiency. Margins in the North American segment have reached record highs, and the international retail business is beginning to turn the corner.
Perhaps most overlooked is Amazon’s advertising business, a $50 billion-plus segment with enviable margins. By leveraging its first-party consumer data, Amazon can offer marketers highly targeted ad placements directly at the point of purchase. This business has grown rapidly and now contributes meaningfully to both operating income and free cash flow.
Despite all these strengths, Amazon trades at a valuation that remains modest relative to its long-term potential, especially considering that each of its core segments (AWS, Ads, Retail) could be a standalone Fortune 100 company. With operating leverage accelerating, AWS poised for re-acceleration, and the stock still reasonably priced on a sum-of-the-parts basis, Amazon represents one of the most attractive large-cap opportunities in the market.
Uber
Uber’s evolution from a money-losing disruptor to a capital-efficient global platform is one of the most under-appreciated transformations in tech. For years, Uber was emblematic of Silicon Valley’s “growth at any cost” mentality. Today, it’s a profitable, cash-generating platform business with entrenched network effects in mobility and delivery. Its core ride-sharing business (Uber Mobility) has reached an enviable level of scale, with high EBITDA contribution margins and rational competitive dynamics in most major markets. The dual-sided network of riders and drivers makes it difficult for any new entrant to compete effectively, especially as Uber expands into complementary offerings like shared rides, luxury services, and even taxi partnerships.
Uber Eats, once considered a drag on profitability, has emerged as a valuable logistics layer. It has achieved scale in both food and non-food delivery, and now serves as a launchpad for Uber’s advertising ambitions. With visibility into consumer demand and delivery behavior, Uber is well-positioned to build a high-margin, data-driven ads business within the Eats platform.
Uber’s financial profile has improved dramatically. It now generates consistent free cash flow and trades at ~15x next year’s free cash flow, which I view as a reasonable multiple for a business growing revenue at 15-20% annually. With profitability achieved, balance sheet strength established, and strong execution continuing, Uber is not only a comeback story, it’s a durable compounder hiding in plain sight. If added to major indexes like the S&P 500, it could also benefit from significant passive inflows.
Salesforce
Salesforce may not be the flashiest software name in the market today, but it remains one of the most mission-critical platforms in enterprise technology. As the system of record for customer relationships across sales, service, marketing, and more, Salesforce’s software is deeply embedded within the workflows of over 150,000 organizations. It benefits from high switching costs, a vast ecosystem of integrations, and a compelling cross-sell opportunity as enterprises seek to unify customer data across touchpoints.
Over the past 18 months, Salesforce has undergone a strategic pivot under renewed leadership focus and activist investor scrutiny. Gone are the days of aggressive M&A and unchecked opex growth. In their place, investors have seen a reinvigorated focus on margin expansion, cash flow, and shareholder returns. Salesforce now targets 30%+ operating margins, and it has already demonstrated significant operating leverage, even as revenue growth remains in the low teens.
At the same time, Salesforce is leaning into AI and data unification through its Einstein platform and Data Cloud initiative. These tools will not only deepen Salesforce’s competitive moat but also drive higher ASPs and stickier customer relationships. With the company now generating over $12 billion in annual free cash flow, actively repurchasing stock, and trading at a discount to peers like NOW 0.00%↑ ServiceNow and ADBE 0.00%↑ Adobe on a cash flow basis, Salesforce is an enterprise software staple that offers both quality and upside.
Conclusion
What unites Amazon, Uber, and Salesforce is not just size or brand recognition, it’s the underlying quality of their business models. Each company operates a platform at scale, benefits from powerful network effects or switching costs, and has shown a clear commitment to improved capital discipline and shareholder value creation. At a time when speculative pockets of the market are richly valued and cyclical businesses face macro headwinds, these three names offer something increasingly rare, which is resilient growth, improving margins, and strategic moats, all at reasonable valuations.
For long-term investors seeking to compound capital in businesses that can weather volatility and emerge stronger, Amazon, Uber, and Salesforce stand out as high-quality buys today.