Top 4 favorite stocks to own forever
As The Dutch Investors, we are passionate (obsessed) about finding the best companies in the world. Here are our top 4 favorite stocks we found.
Today, a guest post by the Dutch Investors! Enjoy!
Hi fellow-investors,
We are the team behind The Dutch Investors. We are four passionate long-term investors, called: Luuk, Mathijs, Siem and Bouke.
We share a passion (some would say obsession) for analyzing the best companies in the world by combining the principles of the best investors.
Why we do this! We're convinced that investors are bombarded with useless advice and lack access to thorough and actual, solid, factual research. We are here to change that!
Our mission is simple.
"Helping you find and understand the best companies in the world."
Our Substack has an enormous and growing amount of information, free tools and fundamental analyses.
Become a better investor today!
You get a new fundamental analysis every single Friday! That's 52 analyses per year. Less than a cup of coffee per week! Here are just a few examples:
The Dutch Investors’ 4 favorite companies
We prioritize quality over quantity. That's why we've created a watchlist featuring our favorite stocks. These are companies that meet all our criteria and have passed our rigorous analyses.
Our investment criteria:
To analyze and find quality companies, we are looking for companies that meet our five quality requirements. These quality requirements are based on the wisdom of our personal heroes, Warren Buffett, Charlie Munger, Nick Sleep and Guy Spier.
Circle of competence: We want companies that are easy to understand.
Competitive advantage: We target companies with a sustainable competitive advantage that is difficult to replicate.
Great management: We look for companies where management is highly skilled at capital allocation and has enough skin in the game.
Financial health: We invest in companies that are financially strong, with acceptable debt levels and plenty of growth potential.
Valuation: We prefer companies where we don't overpay, minimizing risk and maximizing potential returns.
Through our approach, we fill your portfolio with the best companies in the world.
Let's start with our top pick from our analyst: Bouke.
1. Duolingo
What is Duolingo?
Duolingo is a company that uses user data to build the best possible app and website, making language learning both efficient and enjoyable. They incorporate various psychological techniques to enhance the learning experience.
What is Duolingo’s moat?
Duolingo's moat is based on two flywheels: the “learning” flywheel and the “investment” flywheel (network effect). The learning flywheel means that more users lead to better data, improving the engagement and effectiveness of the products.
The investment flywheel is fueled by the size of the user base. Paying subscribers enable Duolingo to invest in an even more enjoyable, engaging, and effective learning experience, expanding popularity and user base, further strengthening the competitive advantage.
How does Duolingo make money?
Duolingo earns money through a "freemium" model, where users have free access to basic content and can unlock additional features with the paid subscription "Super Duolingo." Approximately 8% of users pay for this premium version. Additionally, Duolingo offers the Duolingo English Test for online assessment of English proficiency. With the launch of products like Duolingo ABC and Duolingo Math, the company is considering expansion into other educational subjects.
Key Performance Indicators (KPIs) of Duolingo:
Monthly Active Users (MAUs). Provides an indication of the size and reach of their user base.
Daily Active Users (DAUs). DAU offers insights into user engagement, indicating how effective the platform is at retaining active and returning users.
Paid subscribers. Essential. Growing paying members means more cash flow, which can lead to reinvestment, a better platform, more marketing, restarting the flywheel.
And yes, he is a (bit) biased…
Let’s go to our top pick from our analyst: Mathijs.
2. Hermès
What is Hermès?
Hermès is often regarded as the Rolls-Royce of the fashion industry, known for its unparalleled dedication to quality and craftsmanship. With a 187-year history, Hermès has built a powerful brand synonymous with exceptional luxury, attracting a highly loyal and affluent customer base.
Unlike competitors such as Gucci and Moncler, Hermès remains resilient even during economic downturns, as its customers continue to value and invest in the brand's timeless products.
What is Hermès' moat?
Hermès’ moat lies in its unmatched brand image, rooted in a long-standing commitment to craftsmanship and exclusivity. The company’s focus on handmade products, combined with a robust distribution network, ensures that Hermès is more than just a brand—it represents a luxury experience that cannot be easily replicated. This unique position allows Hermès to maintain its prestige and command premium prices, even in a competitive market.
How does Hermès make money?
Hermès can be considered the Rolls-Royce of the fashion industry. Hermès has a strong brand name, built through centuries of dedication to quality and craftsmanship. This results in a highly loyal (affluent) customer base. This also distinguishes Hermès from competitors like Gucci and Moncler, which are more susceptible to economic downturns when consumers become more cautious about their spending.
Key Performance Indicators (KPIs) of Hermès:
Revenue Growth: Hermès aims for consistent annual revenue growth, driven by strategic price increases and potentially expanding sales. The goal is to continue capitalizing on the high demand that exceeds supply.
Net Income Margin: Maintaining high profit margins is critical for Hermès. Any decline in margins could suggest a weakened competitive advantage, as the brand should ideally be able to pass on rising costs to its customers without issue.
Brand Image: Hermès must always protect its history, values, and brand integrity. Any compromise in these areas could severely damage its reputation and competitive edge.
It’s time for our top pick from our analyst: Luuk.
3. Amazon.com
Yes, I know, boring… Everybody knows Amazon is a great business. But do they actually? I would argue that a significant number of individuals lack a comprehensive understanding of their origins, the significance of their culture, and the strategies employed to construct arguably the most formidable moat in the world, possibly comparable to that of Microsoft.
What is Amazons moat?
Amazon's moat is colossal. It is one of the few companies globally that successfully leverages shared economies of scale. The details of what shared scale advantages are and why it's so successful are covered in the exclusive analysis. Additionally, Amazon employs network effects in various ways, the barrier to entry for competitors is enormous, and the switching costs for AWS are enormous. In other words, even with an amphibious vehicle, you wouldn't penetrate Amazon's moat.
How does Amazon make money?
Amazon's revenue model is based on a diverse range of activities, including e-commerce, cloud computing (AWS), advertising, subscriptions (Prime), and logistics. While the e-commerce platform serves as the core, Amazon maintains low margins in this segment while simultaneously building other segments with higher margins. The company has invested in tools for third-party sellers, an Amazon subscription business, and expanding advertising services.
Key Performance Indicators (KPIs) of Amazon.com:
Amazon.com's success depends on customer spending, essential for the network effect to flourish. Without customers, Amazon's E-commerce, Ads, & Prime performance falters.
Revenue growth and (increasing) profitability of AWS. Critical. This segment offers the most profit potential with very high switching costs, and huge margins.
Revenue growth in the advertising sector. A new source of income with decent margins, allowing them to keep costs low elsewhere.
If you like, you can get the Amazon.com fundamental analysis entirely for free on our website.
Last but not least, the top pick from our analyst: Siem
4. EssilorLuxottica
Many of you may not be familiar with this company, but most of you have used its products at least once in your life.
What is EssilorLuxottica?
EssilorLuxottica, formed from the merger of Luxottica and Essilor, is the world leader in the optics (glasses and lenses) market. The eyewear industry is dominated by an invisible empire, EssilorLuxottica, which controls nearly 80% of global eyewear production. What you think are exclusive designer glasses from luxury brands like Chanel or Ray-Ban are actually produced by this one company, which has built a near-monopoly through strategic acquisitions and a vertically integrated business model.
How does EssilorLuxottica make money?
EssilorLuxottica, a global leader in the eyewear industry, has a relatively straightforward business model centered around the sale of glasses and lenses. They generate revenue through two main channels:
Direct to Consumer (DTC): This channel accounts for about 53% of their total revenue. EssilorLuxottica sells products directly to customers through its retail stores (like Ray-Ban and Sunglass Hut) and various e-commerce websites.
Professional Solutions: This channel makes up the remaining 47% of their revenue. It includes sales through distributors, independent opticians, external e-commerce platforms, and other third-party retailers.
EssilorLuxottica operates with a vertically integrated model, meaning they control every step of the value chain—from product design and manufacturing to distribution and sales. While they do not own most of the luxury brands they sell, they hold the rights to produce and sell eyewear.
In terms of product categories, the bulk of their revenue comes from Vision Care products (75%), which include prescription glasses and lenses, followed by Sun Business (24%), which includes sunglasses.
Why is this my favorite stock?
Let me give you some stats, to show you its size and moat strength:
Controls 60% of U.S. eyewear market
Owns 17.500 retail locations
Produces over 1 billion glasses and lenses annually
Manages over 150+ brands, such as: Ferrari, Chanel, Ray-Ban, Jimmy Choo, Tiffany & Co, and many more.
Has insane pricing power. The average retail price of a simple eyeglass frame is around $230, with production costs as low as $4-$15 per frame, leading to mark-ups that can exceed 1000%. This is what he said when he was younger (and still alive):
"You get rich by selling $2 sunglasses for $150 bucks and aggressively running out/buying your competition. "
Here are just 4 of our favorite companies. We have many more detailed for you in a free watchlist, which you can request by clicking the button below.
Want more from The Dutch Investors? Subscribe for an in-depth article every week! Completely free.
 | A guest post by
|
Very interesting posting. Just enough and not too much. All provocative ideas.
I know 'product experience' isn't always seen as a defensible moat, but in the context of Duolingo and how far ahead of the competition they are on this front, I would add it as part of their moat as well.