5 Undervalued Heavy Moat Stocks I Will Be Buying

The market is down 5% YTD, but many high-quality stocks are already selling for a serious discount. These are the five of them I'll be buying in the next few weeks.

What are the properties that distinguish successful investors from others?

I often think about this question, especially when the times get hard. Of course, one can come up with many answers like:

• Deeper knowledge.

• Better research.

• Or even luck.

I don’t think it’s any of these.

How, you may ask, “how come deeper knowledge isn’t a factor?”

I have always said that 90% of the fundamentals you need to succeed at investing, you can learn in 6 months. The long-tail distribution, let’s say the final 8%, may take another year, and you never go beyond it. From then on, you are always at 98% because there are always new things to learn.

What is it then if it’s not deeper knowledge or better research or even luck? I would say two things:

• Intellectual honesty

• Emotional control

These are very rare properties among investors, and this is why I have always tried to focus on these two things in this publication and in my relationship with the readers and supporters of this publication.

If you go back a few months, I shared the below meme and said this was the mood of the stock market:

Indeed, investors were buying stocks in popular themes, and they were instantly going up, pumped by the retail presence on social media and investment publications.

I have always said getting used to that was just wrong.

Let’s turn to the basics, shall we? Investing is basically this:

• You buy undervalued things.

• Hold them until they are no longer undervalued.

• You may hold even longer if the expected future value is greater.

But the key point is that you should be buying something “undervalued.”

Now, that undervaluation could be relative to the current state of what you are looking at or its future potential. It doesn’t matter. In each case, the stock is supported by fundamentals, and they don’t change overnight. If they had the potential to change overnight, the market should have already priced it.

It’s not a coincidence that Buffett is holding his stocks for decades, and he is up 10x, 40x, 50x on them. It doesn’t matter if American Express goes down by 20% next month.

In his holding period, all these stocks have gone down by more than 30% several times. He didn’t sell them and tried to make money shorting things.

Thus, buying something and expecting it to go up in a month or two is not reasonable if you are “investing.” If you want to speculate and you know it, it’s fine.

If you are investing, you should know that you are buying something undervalued, and if something is undervalued, it was probably in a downtrend. It’ll take the business to perform well to break that downtrend, and the business’s performance can be meaningfully tracked by looking at several quarters, not just one or two.

This is why, when many people saw their holdings go up just after they bought over the last year, it was largely a peaking bull market, not an investing genius.

This applied to our holdings as well, and we tried to keep our intellectual honesty.

When something we bought skyrocketed in a short period of time, I always said it felt good, but it was probably nothing permanent, since we didn’t have enough time to see the fundamental improvement.

This intellectual honesty is crucial as it’s what keeps us on the right track. The moment you believe you can analyze your way to consistently finding stocks that’ll go vertical in a month, you lose your intellectual honesty, and you’ll probably lose your money as well.

It was with this sense of intellectual honesty that I kept telling everybody in the last few months that hard times were coming, and we should position ourselves accordingly.

In this period, we kept researching and spotting potential opportunities, but we didn’t make many purchases. Instead, we closed/trimmed positions, raised cash, and focused the portfolio on high-conviction positions.

This is where the emotional control aspect comes into the game.

Charlie Munger puts this best:

This is exactly how the current environment feels—everything goes insane:

• The war between the US/Israel front and Iran is ongoing.

• The Hormuz Strait remains closed, and energy prices are going up.

• Questions about the AI investment are rising as there is still no solid ROI.

On top of all these, there is a great ambiguity about what the Fed policy will be over the next few months. If the bull market has wired you into buying things and seeing them shoot up in the next month or two, you’ll get really disappointed in the coming months.

I see that many people are psychologically not prepared for this. When they see their holdings go down, they are trying to get out and jump into other trains, hoping to keep straight line up they got used to seeing over the last 2-3 years.

This is the definition of insanity.

Investing is all about increasing your exposure to things that’ll do well in the future. This translates to buying companies with exceptional prospects with a view to holding them forever and opportunistically increasing your exposure to them.

This is exactly why we raised our cash position over the last month. We didn’t increase it to sit on it. If you followed and increased your cash position, you should also internalize that you didn’t increase it to sit on it. You increased it to deploy at more attractive prices. Otherwise is just insanity.

Thus, if you positioned accordingly, seeing the market go down should make you happy, not upset.

This is where we are currently at. I understand that many people have questions about the market conditions and are skeptical about deploying money.

But you have to convince yourself of two things:

• You are holding the money to deploy.

• The deployment decision is based on the company valuation, not market conditions.

The voice in your head that makes you want to wait for a better time is just the desire to see the position only go up after your allocation. And as I said, it’s an illusion of the bull market, and it’s the definition of insanity.

Regardless of what the market conditions are, there are some very attractive opportunities in this market.

Below, I am sharing the 5 stocks I’ll be buying over the next few weeks. They all share the following properties:

• Exceptional companies with a low chance of failure in the future.

• Trading at a significant discount to fair value.

• They have a long runway for growth ahead.

On top of all these, I already own each one of them in the portfolio, so you know my money goes where my mouth is.

Note that the list is not definitive.

There are many other opportunities that I am willing to buy and already own, like Klarna and SoFi, but I wanted to keep this list short and actionable, and wanted to minimize the chance of failure, so people can have an easier time buying.

Here is what I’ll be buying:

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5️⃣ 3I Group

• 5-year Net Asset Value CAGR: 30%

• Price/NAV: 0.9x

This is one of the most obvious opportunities I currently see in the market.

3i is a British private equity firm, and also the majority owner of the fastest-growing non-food retailer in Europe, Action.

What makes 3i different is that most of its capital is permanent. This allowed it to pursue a strategy of buying exceptional businesses and holding them long-term.

The crown jewel of their portfolio, the most exceptional business they own, is Action, which is the fastest-growing non-food discount retailer in Europe.

They acquired a majority stake in Action in 2011 and have grown their stake opportunistically since then, riding Action’s growth. As a result, Action’s share in their portfolio grew continuously while the other parts of the business remained largely stagnant:

This turned 3i effectively into a public wrapper around Action.

Action currently has around 3,000 stores across Europe and 18 distribution centers across Europe:

This store and distribution center network reduces transportation and warehousing costs, creating local economies of scale, making it hard for competitors to match their prices even if they have the efficient scale in their bargaining with the suppliers.

The management says that the total white-space potential is around 4,850, which means Action can reach a total footprint of ~7,700 stores just in Europe. This is a long runway, and Action is well-positioned to exploit it.

The main reason I think 3i is very attractive right now is the valuation; it’s currently trading below Net Asset Value.

In the last update, 3i said that its NAV hit 3,017 pence per share:

Yet, it’s currently trading at 2,744 pence per share.

As the majority of the portfolio is Action, we should see its portfolio as Action+other businesses. They disclose performance metrics for Action but not for all other businesses.

Thus, we can value Action independently. Here is my Action valuation I shared in my deep dive in January:

Given that the company grew EBITDA 31% annually since 2020, I think it can easily grow EBITDA 15% annually in the next 5 years. As the annual EBITDA (operating and non operating) was €2.5 billion according to the October update, assuming 15% annual growth, we’ll get we’ll get €5 billion EBITDA in 2030. Attaching 16x multiple, we’ll get a €80 billion company.

Action’s debt will decline as the company matures, so we can assume the Debt/EBITDA multiple will be 2x, giving Action a net debt of €10 billion and equity value of €70 billion in 2030.

Assuming stable 62% ownership, 3i’s stake will be worth €43 billion or £37 billion.

Discounting it back to today at 10%, we get £23 billion worth of stake in Action.

This is what I wrote just a week before their update in February. In that update, they pulled their Action valuation to £22.4 billion, indicating my valuation was accurate:

When it comes to other businesses, we don’t have individual financials, but we know that they have a track record of exits at a premium on disclosed valuations.

• In September 2025, 3i exited MPM at an 18% uplift on its latest valuation.

• In November 2025, 3i exited MAIT at an 34% uplift on its latest valuation.

• In October 2024, 3i exited WP at an 18% uplift on its March 2024 valuation.

So, even if we assume that they valued the rest of the businesses fairly and there will be no uplift on the disclosed valuation, the current price of 2,744 pence per share is below their disclosed NAV of 3,017 per share, which we just validated with our independent Action valuation and assumption of no uplift on the valuation of others.

The market is discounting it because of competition concerns for Action and deteriorating macroeconomic conditions. In late January, RBC downgraded 3i to Underperform and cut the price target to £30, arguing that Action faces a risk of “diminishing returns.”

I don’t think this is true. We clearly saw this in their latest performance print as Action added a record of 384 net stores in the year, and same-store-sales accelerated from 4.9% last year to 6.1% in the first four weeks of January 2026.

I think this robust performance will continue, and we’ll see NAV reach at least 3,200 in the first half of this year, which makes the current below NAV valuation very attractive for me.

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4️⃣ Amazon

• 5-Year Revenue CAGR: 13%

• Return on Capital: 15%

• Forward P/E: 30x

Amazon has never been valued lower, except for earlier this year:

Of course, this doesn’t automatically mean that it’s cheap. On the contrary, if the growth and stability of the business don’t justify, 30x forward earnings is way too high.

In Amazon’s case, we have both stability and growth.

In the last couple of years, the biggest drag on Amazon’s valuation was cloud growth lagging behind the competitors. While Google Cloud was growing by +25% a year and Azure by +30% a year, AWS was lagging with growth below 20%.

This is changing now:

We saw AWS growth accelerate every quarter last year, reaching 24% YoY in the last quarter. This growth was because of Anthropic’s giga-watt scale clusters coming online late in the year.

AWS is trying to keep this momentum by partnering up with other AI labs as well. It first signed a $35 billion contract with OpenAI in November and announced a $50 billion investment in it last month. The latter includes a cloud services agreement as well, according to which OpenAI will consume 2 gigawatt capacity from AWS.

Thus, I expect AWS acceleration to continue throughout this year. UBS also stated that AWS's growth may come at 38% this year:

I think this is a very high bar, and I’ll be glad with anything above 25%. However, it’s not totally impossible, as the CEO Andy Jassy reportedly said AWS sales will hit $600 billion by 2036:

I don’t know whether they can really hit that target or not. What’s clear is that there are significant tailwinds behind AWS, and there will be for the next 5-10 years.

So, even if we assume just 25% annual growth for AWS, we’ll get around $400 billion in revenue in 2030, as it did nearly $130 billion last year. Assuming 30% net margin and 25x exit multiple, we’ll be looking at a $2.9 trillion business.

Assuming 10% annual discount rate, it’s worth $1.8 trillion today. Amazon is trading at $2.2 trillion now, which means the remaining business that generated $35 billion in operating income last year is valued only at $400 billion, which is pretty low as they include dominant e-commerce marketplace and a fast-growing advertising business.

If you attach a 20x operating income multiple to the remaining businesses, we should get a $2.5 trillion valuation today, meaning it’s around 15% undervalued now with further upside depending on AWS growth.

This discount may not look much, but note that you are buying Amazon and the optionality as sources like UBS expect significantly higher growth from my base case.

In short, Amazon is at an attractive point today. I’ll increase my position a bit and keep looking for a further dip to buy even more.

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3️⃣ MercadoLibre

• 5-Year Revenue CAGR: 49%

• Return on Capital: 14%

• EV/EBIT: 30x

MercadoLibre (MELI) is another giant trading at its lowest valuation ever.

It’s structurally very similar to Amazon as it combines a dominant but low-margin e-commerce business with a high-margin tech business. For Amazon, that high-margin business is cloud, for Meli it’s fintech.

Both of these segments are still growing very fast, as fintech grew 53.8% and commerce grew 51.5% annually since 2020:

Despite this incredible growth, the stock is down by almost 20% year-to-date and is now trading at its lowest valuation.

Why? Well, classic Wall Street hates to see compressing margins for the sake of growth.

In the last earnings print, we saw that it delivered $8.76 billion in revenue, beating the expectation of $7.97 billion by roughly 10%. However, operating margin compressed from 12.7% to 11.1%, and net income margin fell from 9.2% to 6.9% year-over-year.

The margin compression was due to heavy investment in their logistics infrastructure, as capital expenditures jumped from $900 million levels to $1.3 billion levels. Also, to turn their investment into market share, they slashed the free shipping threshold from 79 Reals to 19 Reals in Brazil. Tax rate normalization also weighed on margins as it increased from 21% in 2024 to 29% last year.

The market is currently pricing the stock as if the margin compression will be permanent. I believe it won’t. As their logistics network matures, coverage and speed will hit limits, and they’ll inevitably reduce investment. Plus, faster growth of the higher margin fintech business will contribute significantly to margin expansion.

Amazon finished last year with nearly 11% net margin. Given that the tech side of their business (cloud) is much more capital-intensive, I think Meli’s blend margins will be much higher than Amazon’s, possibly hitting 15% mark with ease, as it was already close to 10% in 2024.

Assuming a conservative 20% annual growth for the next 5 years, we’ll get $72 billion in revenue in 2030. At 15% net margin, we have $10.83 billion in net income. Attach a conservative 20x earnings multiple, and we get a $216 billion company.

Discounting it back to the current day at 10% annual rate, we get a fair value of $134.4 billion, implying a 60% upside from the current valuation.

If it hits just 10% net margin, we get a fair value of $90 billion. Looks like this is the scenario the market is pricing right now. I think there is significant optionality here:

• Growth will likely be higher than 20% annual rate

• 20x exit multiple is conservative for a dominant business

• Margins can easily climb above 10% as the businesses mature

I believe Meli is currently one of the most attractive dominant companies in the market, and it looks like the current valuation ignores all the optionality.

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2️⃣ META

• 5-Year Revenue CAGR: 18.5%

• Return on Capital: 28%

• Forward P/E: 19x

Meta is possibly the cheapest mega-cap stock right now.

What’s remarkable for Meta is that its growth accelerated every year in the past three years despite its gargantuan size. It grew 16% in 2024, 22% in 2024, and 22.2% last year.

The growth is fueled by heavy adoption of AI systems in Meta’s targeting algorithms. The algorithms got so good that advertisers are now better off starting with broad targeting and letting Meta find their buyers than adjusting targeting by themselves.

Another factor I like is that their business is one of the few tech businesses that aren’t threatened directly by AI. Social networks will always exist, and people will always want to interact with people. So, in my view, their core businesses have only upside from AI.

The real question for me is whether they’ll destroy shareholder value while pursuing other AI-related opportunities, as we experienced this with Metaverse. They spent around $70 billion in capex last year and are guiding for $115-$135 billion this year.

What’s interesting is that it’s still guiding for an operating income higher than last year, which means that they expect growth to fully absorb the depreciation. This is where AI spending differentiates from the Metaverse. We are seeing the direct ROI for Meta.

They doubled the GPUs powering its GEM ad-ranking model, which delivered a 3.5% year-over-year lift in ad clicks on Facebook and over 1% in conversions on Instagram. Also a unified model called Lattice drove a 12% improvement in overall ad quality.

All these improvements result in a direct boost to their top-line as their customers get better results and spend more. So, among all the big tech, Meta is perhaps the only one seeing immediate returns from AI spending to both its top and bottom lines. This is why I am not particularly concerned about their spending spree.

In a conservative scenario, I believe they can grow 15% annually for the next 5 years, which gives us $400 billion in revenue in 2030. Assuming 30% net margin (which is lower than their optimized net margin of ~35%), we’ll be looking at $120 billion net income. At stable 25x earnings, we have a $3 trillion company.

Discounting it back to today at 10% annual rate, we get a $1.9 trillion fair valuation, indicating around 30% undervaluation.

This gives us a target price of around $756 per share vs the current price of $593.

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1️⃣ NuBank

• 5-Year Revenue CAGR: 82.5%

• Return on Equity: 30%

• Forward P/E: 15x

NU is probably the easiest decision among all the stocks I listed here.

Its growth is simply insane:

What’s even more impressive for me is that they didn’t sacrifice underwriting standards to generate this growth.

While they kept growing fast, their non-performing loans stayed largely stable, and the coverage ratio increased. They are simply the gold standard when it comes to neo-banking.

The investment case is very simple: The stock is very cheap given its current and future growth.

It’s currently trading at 15x 2026 earnings and 11x 2027 earnings while they are about to start their global expansion. This is not just a prediction; this is their strategic plan explicitly stated in last quarter’s earnings:

From what they say here, we understand that their US expansion is just a part of their bigger plans for global expansion. They have already received the preliminary approval to establish a nationally chartered bank in the US in January, and they are looking to fully launch by mid-2027.

Yet, analysts have around 20% and 9% growth expectations for 2027 and 2028. This means that neither US expansion nor global expansion plans have been priced in.

Buying this company at 11x next year’s earnings just before its entry into the biggest consumer market in the world is just a no-brainer. Plain and short. At the current valuation and relative to prospects, it’s the easiest decision in this list.

I own a position, and it’ll probably be the first one I’ll be increasing going forward.

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🏁 Last Words

I know many people are very confused and anxious about what to do given the geopolitical tensions, macroeconomic deterioration, overvalued market, etc…

I don’t know what the market will do, what will happen in the Iran War, what the Fed policy will be, etc. Nobody can know these, and if somebody is commenting on these, you should know that it just sounds smart, but the value creation of it will be 0.

Investing should be a dependable practice. Acting on politics or macroeconomics is not dependable. If it were, we wouldn’t have any crisis.

What is dependable is the fundamentals. If the company has a durable competitive advantage, you can make more reliable predictions and depend on them. This is the limit of our intellectual capacity. History has repeatedly shown that succeeding consistently based on macro conditions is beyond our capacity.

If Buffett and Munger just sit on their positions through three 50% drawdowns in their careers, you should be prepared to do the same. Trying to get in and out of the market will be destructive.

You just need the right cash allocation. If you have this, it should make you happy to see stocks go down. If you don’t have it, you’ll be stressed.

Assuming that you have it, the next step should be staying sane while everybody else goes insane. You should remember that you have the cash position to deploy, not to sit on it. When the right stock comes to the right valuation, you have to act regardless of future expectations.

These 5 stocks I share here are the ones I’ll most likely be buying in the next few weeks. There are others like SoFi and Klarna, but I limited it only to the dominant companies in their markets, so pulling the trigger feels more comfortable.

I’ll be sharing the updates as I make changes to the portfolio.

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That’s all friends!

Thanks for reading Capitalist-Letters!

Please share your thoughts in the comments below.

👋🏽👋🏽See you in the next issue!