And so the roller coaster markets continue.

Fortunately, I know how to ride roller coasters with the best of them. I have plenty of experience to work with.

As my regular readers know, my job for two and a half decades was as a commercial real estate developer. But then the housing bubble burst, the Great Recession set in, and I was out of work.

That’s when I decided to start writing articles on Seeking Alpha. And fortunately for everyone involved, my insights were much better than my writing.

It turned out that people needed my boots-on-the-ground experience.

You see, I know how to build a company from the ground up. Literally. Unlike so many financial academics out there – and with all due and sincere respect to them – my education experience didn’t just come from books in college.

Not only did I run my own business, but I did hard-core research on others before signing them as clients. If I misread the details, I lost money.

That hands-on, skin-in-the-game experience of negotiating over $1 billion in capital markets transactions gave me an edge over competing writers. So did my genuine desire to see others succeed.

This isn’t a mere business to me. I consider it my calling to help you succeed – hopefully without making the same mistakes I did along the way.

That’s why I write so much about quality, valuation, diversification, and all those other topics some of you are probably sick of hearing about by now. I want to see you retire happily and stay happy through retirement.

It’s why I’m digging into my past life to bring two companies to your attention today.

A Tale of Four Companies

Last week, I wrote about two retailers I used to build stores for: Advance Auto Parts (AAP) and Walgreens Boots Alliance (WBA). They were growing by leaps and bounds back then.

As I explained though, “Just because a business is protected one day doesn’t mean its moat might not dry up tomorrow. You have to stay vigilant if you’re going to stay profitable.”

Otherwise, you can find yourself falling by the wayside as your relentless competition edges you out slowly but surely. Quite simply, what set them apart doesn’t stand out so strongly anymore.

Their economic moats dried up.

Source: Yahoo Finance

That’s why Walgreens is being acquired by Sycamore Partners (for $23.7 billion) and Advance Auto brought in a new CEO. I think they’ll both survive in the end. But they have a lot of work ahead to re-establish their market dominion.

Today, I want to highlight two other development customers of mine that have kept their moats intact all these years. When I first evaluated them as a developer, I especially liked their ability to earn high returns on capital. They did that by consistently:

  • Increasing earnings

  • Returning cash to shareholders

  • Compounding their intrinsic value

And all these years later, they’re playing that same long game.

The Beauty of Watching Paint Dry

I first began building stores for Sherwin-Williams (SHW) around 25 years ago, though the company itself dates far, far back from that. This business was founded in 1866 and paid its first dividend to shareholders in 1885.

Today, Sherwin Williams manufactures, develops, distributes, and sells paint in more than 120 countries. Plus, it’s increased its dividend for 46 years straight. And counting.

In fact, just this past February, the company raised its payout by 10.5%!

Now, its residential paint segment makes up around 50% of its sales from both new construction and homeowners. And tariffs – whenever they do come into play – could weigh on those products, especially if a recession takes place. After all, tariffs should make inputs for housing more expensive, all else equal. That could weigh on new housing starts and have knock-on effects for Sherwin-Williams.

Then again, we’ve seen plenty of other times when economic softness and financially constrained consumers didn’t dent Sherwin-Williams’ financials. Plus, its balance sheet today is in excellent shape, sticking within its debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) leverage ratio of 2 to 2.5 times.

Essentially, consumers and businesses alike trust this company, and so they keep coming back for more. Given that wide-moat advantage, I expect it to weather just about any storm coming our way… raising its dividend all the while.

Speaking of such, the current (very choppy) sell-off has put Sherwin-Williams’ shares within fair-value trading range. Have a look at the below chart, courtesy of FAST Graphs. What the blue line denotes is SHW’s fair value level as determined by its historical price-to-earnings ratio. The dashed part of the blue line shows a forecast of future fair value, based on historical growth. And, as you’ll notice, the stock just touched that fair value level.

Wide Moat Research forecasts an annualized 15% total return for this long-lasting company.

Source: FAST Graphs

The Dominant U.S. Rural Lifestyle Store

My second wide-moat winner is the Tennessee-based Tractor Supply. It offers products like livestock feed, land and garden items, pet supplies, and power equipment.

Already the nation’s largest rural lifestyle retailer, it’s not done growing. Just last year, it opened 80 new Tractor Supply and 11 new Petsense stores (think of these as a competitor to PetSmart or PetCo). That brings its totals to 2,296 of its namesake shops in 49 states and 206 Petsenses in 23.

It also opened its 10th distribution center in 2024, with plans for its 11th to open in late 2026 or early 2027.

Tractor Supply generated record sales last year of $14.9 billion, up 2.2% from 2023. And its record $1.4 billion in operating cash flow is worth noting too since it’s not done expanding yet. Then it used that windfall to return over $1 billion to shareholders through share repurchases and dividends.

Speaking of the latter, 2024 marked the 15th consecutive year Tractor Supply grew its dividend.

Once again, tariffs (or no tariffs) aren’t enough to slow this business down for long. It’s in excellent shape to grow its operations, its profits, and its dividends.

Wide Moat Research finds these shares attractive today and forecasts an estimated annualized total return of 15%.

Source: FAST Graphs

I know the volatility can be unnerving. But as I – and my fellow analysts – have been saying, every past market downturn has proven to be a buying opportunity for long-term investors. I doubt this time will be different. It’s not always easy. After all, when it’s time to buy stocks, most people won’t want to. But if readers are looking for value and long-term growth in dividends and earnings, they could do much worse than the two companies I shared today.

Regards,

Brad Thomas
Editor, Wide Moat Daily

P.S. And don’t forget to catch the latest Wide Moat Show right here! This week, Nick and I discuss tariffs, markets, and how not to fall victim to a common income trap.

MAILBAG

What companies are you keeping your eye on during the downturn? Write us at [email protected].