Warren Buffett’s investment philosophy centers on a fundamental principle refined over decades: it’s better to acquire exceptional businesses at fair valuations than average companies at steep discounts. He seeks enterprises with durable competitive advantages—his famous “economic moats”—that can sustain above-average returns for extended periods. Rather than chasing market momentum or speculative opportunities, Buffett prioritizes companies led by capable management teams that generate consistent profits and reliable cash flows, all available at sensible prices.
The Validea Warren Buffett model translates these time-tested concepts into a systematic framework for identifying superior businesses. Based on insights from Mary Buffett’s “Buffettology,” this quantitative approach distills Buffett’s investment wisdom into concrete financial criteria that spotlight companies with enduring competitive advantages and steady operational excellence.
Earnings consistency forms the model’s cornerstone, requiring uninterrupted profit growth over a complete decade without any loss-making years. This demanding criterion reflects Buffett’s attraction to businesses that deliver reliable profitability regardless of economic conditions.
The quality evaluation extends to stringent profitability benchmarks, mandating an average return on equity of at least 15% across ten years, with no single year falling below 10%. For non-financial companies, the model additionally requires average returns on total capital exceeding 12% over the same period, confirming efficient resource utilization by management.
Financial robustness receives considerable attention, with requirements for positive free cash generation to verify operational strength and limits on long-term debt to no more than five times annual profits to preserve balance sheet health. Management effectiveness is evaluated through their track record of reinvesting retained earnings, specifically demanding returns of at least 12% on these funds to demonstrate profitable capital deployment.
Price considerations enter the equation only after companies satisfy these comprehensive quality filters. Following Buffett’s methodology, the model emphasizes disciplined waiting for attractive entry points, reflecting his conviction that purchasing quality businesses at reasonable prices trumps pursuing speculative investments or following market fashions.
| Ticker | Company Name | Patient Investor | Price | Market Cap ($mil) | PE Ratio | Price/ Sales | Relative Strength | Price/ Book | Quality Percentile | Return on Equity | Return on Capital |
|---|---|---|---|---|---|---|---|---|---|---|---|
| AMAT | APPLIED MATERIALS INC | 100 | $183.07 | $146,913 | 22.3 | 5.2 | 36 | 7.8 | 5 | 36.4% | 38.9% |
| ASML | ASML HOLDING NV (ADR) | 100 | $801.39 | $312,731 | 30.7 | 8.6 | 36 | 15.1 | 3 | 55.6% | 51.5% |
| GWW | WW GRAINGER INC | 100 | $1,040.24 | $49,972 | 26.6 | 2.9 | 68 | 14.4 | 4 | 57.2% | 44.0% |
| LRCX | LAM RESEARCH CORP | 100 | $97.34 | $124,509 | 27.1 | 7.3 | 45 | 13.1 | 7 | 53.1% | 41.3% |
| LULU | LULULEMON ATHLETICA INC | 100 | $237.58 | $28,473 | 16.1 | 2.7 | 37 | 6.9 | 5 | 42.5% | 44.3% |
| NTES | NETEASE INC (ADR) | 100 | $134.58 | $85,216 | 19.2 | 5.7 | 82 | 4.3 | 2 | 23.9% | 21.4% |
| NVO | NOVO NORDISK A/S (ADR) | 100 | $69.02 | $234,136 | 18.6 | 4.9 | 20 | 10.7 | 1 | 88.1% | 106.5% |
| TSCO | TRACTOR SUPPLY CO | 100 | $52.77 | $27,979 | 26.2 | 1.9 | 50 | 12.5 | 8 | 49.6% | 19.8% |
| NEU | NEWMARKET CORP | 96 | $690.86 | $6,518 | 13.7 | 2.3 | 79 | 4.3 | 7 | 35.9% | 29.1% |
| ITW | ILLINOIS TOOL WORKS INC | 96 | $247.25 | $72,444 | 21.8 | 4.6 | 59 | 22.4 | 2 | 107.6% | 63.6% |
Past performance is not indicative for future results
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Originally Posted July 1, 2025 – Ten Top Warren Buffett Stocks – July 2025
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This material is from Validea Capital Management and is being posted with its permission. The views expressed in this material are solely those of the author and/or Validea Capital Management and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
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