My 3 Favorite Stocks to Buy Right Now: The Main Street Observer's Picks

The S&P 500 just completed a three-peat of double-digit gains, rising 16.39% in 2025. That kind of run naturally gets Wall Street's attention. Analysts are widely bullish for 2026, but their targets are all over the map. Some see modest gains, like Bank of America's 3.72% forecast, while others project a repeat of last year's pop, with Deutsche Bank looking for a 16.87% climb. The average historical pattern after three straight years of such gains is a more modest 8% return in the following year, often after a significant pullback. In other words, the easy money may be getting harder to find.

The problem with chasing the market's biggest winners is the "buy high, sell higher" risk. When everyone is piling in, prices get stretched. Valuations are a hot topic, with many noting that US stocks are becoming increasingly expensive. That doesn't mean they can't go higher, but it does suggest future returns may be more modest unless earnings growth keeps accelerating. The rally has been powered by a few big names, especially in tech and AI, creating a K-shaped economy where wealthier consumers keep spending. That's good for corporate profits, but it also means the market is crowded with the same familiar names.

For the investor with a skeptical eye, this setup raises a red flag. When the entire street is looking in the same direction, the best opportunities often lie elsewhere-specifically, in overlooked, high-quality businesses with wide moats. These are the durable winners that don't need a hype cycle to thrive. They're the companies with products people love, brand loyalty that holds through downturns, and real-world utility that doesn't depend on the next quarterly earnings beat. The market's focus on the flashy AI darlings can make it easy to miss these steady performers. It's time to kick the tires on the less glamorous names, the ones that might not be on every analyst's top-5 list but have the fundamentals to build value quietly.

Pick #1: Caterpillar (CAT) – The Unstoppable Infrastructure Play

Caterpillar's moat isn't just wide; it's a fortress built on decades of trust and brutal capital requirements. When a mining company needs a $10 million shovel or a utility needs a backup generator, they don't shop on price. They buy Caterpillar. The brand loyalty here is a real-world utility that doesn't depend on quarterly hype. More importantly, the barriers to entry in this business are immense. Building the factories, tooling, and global service network to compete with CAT is a multi-billion dollar, decade-long project that only a handful of companies can afford. That's the durable advantage.

The real engine of growth, however, is a quiet revolution happening in the background: the power needs of the digital age. As tech giants race to build data centers for AI, they need massive, reliable power. Caterpillar's reciprocating engines are a key solution, and demand is surging. The company is planning to double its output with a multi-year capital investment to meet this need. This isn't a one-off boom; it's a structural shift in energy demand.

The difficulty of competing in this capital-intensive industry is why long-term contracts matter so much. Caterpillar isn't just selling engines; it's locking in multi-year agreements with major energy players. These contracts provide the predictable cash flow needed to fund that massive expansion, while also giving customers the assurance they need for their own billion-dollar data center projects. It's a virtuous cycle: deep customer relationships, high switching costs, and a capital barrier that keeps rivals at bay. In a world of fleeting trends, that's the kind of setup that builds value quietly and reliably.

Pick #2: S&P Global (SPGI) – The Unshakeable Data Gatekeeper

S&P Global's moat is built on a foundation of trust and regulation that's nearly impossible to breach. In the U.S. credit ratings market, the company commands a dominant 50% share. This isn't just market leadership; it's a position cemented by decades of use by banks, regulators, and investors. When a company issues bonds, the rating from S&P is a critical, often mandatory, stamp of approval. The switching costs here are immense. Financial institutions can't afford to gamble on a new, unproven rating agency when their own capital requirements and investor confidence hinge on the score.

The business itself is a classic cash machine. Its revenue is recurring and sticky, derived from long-term contracts with the very institutions that rely on its data. This creates a predictable cash flow that funds expansion and rewards shareholders. The model is simple: provide indispensable, standardized information, and get paid for it year after year. There's little room for disruption because the data is the product, and the product is the same for everyone.

The real barrier to entry is the regulatory moat. New entrants would need to not only build a comparable data network but also gain the trust of a global financial system that has standardized on S&P's methodology for decades. The time, capital, and regulatory hurdles are so high that they effectively deter all but the most well-resourced and patient players. This creates a durable advantage where the company's wide moat isn't just a theory-it's the reality of how the financial world operates. For an investor, it means a steady stream of profits from a business that simply can't be easily copied.

Pick #3: American Express (AXP) – The Loyalty Loop

American Express's strength isn't found in a balance sheet, but in the real-world utility of its network. The company's moat is built on a powerful loyalty loop: its affluent cardholders love the rewards and perks, and merchants love the quality of the customers they bring in. This creates a virtuous cycle that's incredibly hard to break.

The proof is in the daily grind. When you see an Amex logo at a high-end restaurant or boutique, it signals a customer who's likely to spend. That's the real-world signal that the network is working. More users attract more merchants, and more merchants, in turn, attract more users. This flywheel effect is the engine of its durable advantage. It's not just about having a brand; it's about having a brand that people actively choose to use, and that businesses actively choose to accept.

This loyalty translates directly to financial resilience. Amex's clientele tends to be less sensitive to economic downturns, providing a steadier stream of revenue. Through the first nine months of 2025, the company posted revenue of $53.2 billion, up 9% year over year. That growth, even in a period where some consumers are pulling back, shows the strength of the underlying demand. The business model itself is a classic cash machine, with recurring revenue from interchange fees and annual membership fees providing a predictable flow.

The bottom line is that Amex operates like a tollbooth on a busy highway. It doesn't own the cars, but it collects a fee every time they pass. The barrier to entry for a competitor isn't just capital; it's the decades of trust and the network effect that Amex has built. For an investor, that means a business with a wide moat, a loyal customer base, and a simple, repeatable model. In a world of uncertainty, that kind of quality is a cornerstone.

Catalysts and What to Watch: The Real-World Signals

For all the talk of moats and durable advantages, the real test is in the daily grind. The best way to judge these companies isn't by their balance sheets alone, but by kicking the tires and looking for concrete, observable signs that their competitive edges are still working. Let's break down what to watch for each pick.

For Caterpillar, the moat is being tested by a surge in demand it's actively building to meet. The key signal is the company's ability to deliver on its promise to double its output. Watch for news of new data center construction projects and announcements of Caterpillar's reciprocating engines being selected for major power installations. These are the real-world projects that validate the structural shift in energy demand. If the company can ramp production smoothly and secure long-term contracts, it confirms the capital-intensive barrier to entry is still a fortress. Any delays or missed targets would be a red flag that scaling is harder than expected.

With S&P Global, the moat is tied directly to the flow of global capital. The most important signal is the level of global debt issuance. When companies and governments need to borrow, they need credit ratings. Monitor the volume of bond deals and the number of new issuers entering the market. A steady or rising stream of debt issuance feeds the company's core ratings business, proving the trust and regulatory moat are intact. If issuance dries up significantly, it would pressure the recurring revenue model that funds its cash machine. The data is the product, and the product's demand is the real-world utility.

For American Express, the loyalty loop is all about network activity. The clearest signal is cardmember spending trends, especially from its affluent base. Look for reports on transaction volumes and average spend per card. High, consistent spending shows the rewards and merchant quality are still compelling. Equally important are new merchant signings, particularly at high-end retailers and restaurants. When these businesses actively choose to accept Amex, it proves the network's value proposition is strong. The company's revenue of $53.2 billion, up 9% year over year is a good start, but the real confirmation comes from the daily transactions and new partnerships that keep the flywheel spinning.

The bottom line is that these are businesses built on trust, scale, and real-world utility. The financial engineering is simple: they provide something indispensable, and people pay for it. The catalysts are the observable outcomes of that simple model working. Keep an eye on the projects, the issuance, and the transactions. If those are strong, the moats are holding. If they falter, that's the signal to dig deeper.