Three Durable Cash Generators for the Long Term

The long-term investor's task is not to chase quarterly headlines, but to identify businesses with a wide moat, high returns on capital, and the proven ability to compound value over decades. This is the essence of buying a wonderful business at a fair price. The core principle is to focus on intrinsic value, which is built on durable competitive advantages and efficient capital allocation. A powerful indicator of this quality is return on invested capital (ROIC). When a company consistently generates a return that exceeds its cost of capital, it is creating economic value, not just accounting profit.

With thousands of stocks to choose from, the search narrows to those with sound business models, robust balance sheets, and management teams that take a disciplined approach to capital. These are the companies that can navigate different economic environments and form a strong foundation for a diversified portfolio. For investors seeking to build sustainable wealth, the goal is to find "durable cash machines" – enterprises that generate ample free cash flow and reinvest it profitably.

Based on this framework, three stocks stand out for their combination of terrific financials and growth prospects: Eli Lilly, American Express, and Alphabet. Each possesses the characteristics of a durable business, offering the potential for long-term compounding that moves beyond short-term growth narratives.

Chubb Limited: The Record-Setting Underwriter

For a value investor, a truly durable cash generator in insurance is defined by two things: the ability to price risk accurately and the financial strength to weather storms. Chubb Limited checks both boxes with exceptional clarity. The company's third-quarter results were nothing short of record-setting, with property and casualty (P&C) underwriting income of $2.26 billion, a 55% year-on-year surge. More importantly, this was achieved with a combined ratio of 81.8%, a nearly six-percentage-point improvement from the prior year. This metric is the bedrock of underwriting discipline. A combined ratio below 100% means the company is making money from its core insurance operations before investment income, and Chubb's performance-especially the record $2.18 billion in current accident year underwriting income excluding catastrophe losses-shows it is pricing risk with significant power and consistency.

This operational excellence is backed by a fortress balance sheet. The company's Financial Strength Rating (FSR) of A++ (Superior) from AM Best is a powerful third-party affirmation of its capital strength and risk management. The rating specifically highlights Chubb's consistently highly profitable underwriting performance and its very strong operating performance, which together create a wide moat. This credit quality provides a crucial margin of safety, allowing Chubb to maintain its underwriting discipline even when market conditions turn, and to deploy capital with confidence.

Management's recent capital allocation decisions further signal a belief in intrinsic value. While the company has been building capital, it has also affirmed its share repurchase program. This move, coupled with the record earnings, suggests leadership sees the stock as trading below the value of its durable earnings power. It's a classic sign of a management team that understands the business and is willing to buy back shares when they are cheap.

The bottom line is that Chubb operates as a high-quality, wide-moat business. Its record underwriting results demonstrate pricing power and disciplined risk selection, while its top-tier credit rating confirms the financial resilience to compound that value over the long term. For an investor, this combination of superior underwriting and capital strength makes Chubb a prime example of a durable cash machine.

American Express: The High-Value Network

American Express operates as a classic durable cash machine, built on a wide and enduring moat. Its strength lies in a powerful brand and a clientele of affluent, loyal customers. This isn't just a transactional relationship; it's a high-value network where the company earns fees for facilitating commerce without taking on the direct lending risk inherent in credit cards. This fundamental business model creates attractive, recurring cash flows that are remarkably resilient through economic cycles.

The company's financial profile reflects this durability. Through the first nine months of 2025, American Express reported revenue of $53.2 billion, which rose 9% year over year, with net income of $8.4 billion, up by 5%. Even as consumers pulled back on discretionary spending, the business held firm, demonstrating the defensive quality of its premium customer base. This consistency is the hallmark of a compounding engine-earnings that grow steadily, not in spurts.

Management's capital allocation discipline further supports this long-term view. The company has a history of returning substantial capital to shareholders, a practice that signals confidence in the intrinsic value of its earnings power. This focus on efficient capital use, combined with the inherent stability of its fee-based model, allows American Express to navigate downturns with greater ease than many peers. It's a business that compounds value not through aggressive leverage, but through the reliable expansion of its high-margin network.

The bottom line is that American Express is a premium financial stock built for the long haul. Its brand moat, customer economics, and financial resilience create a wide margin of safety. For the patient investor, it represents a stake in a business that is not only profitable today but is structured to generate durable cash flows for decades to come.

Alphabet: The Growth Engine with a Moat

Alphabet stands as a modern archetype of a durable cash machine, where a dominant market position fuels a relentless engine of growth and profit. Its core businesses-search and advertising-form a wide and deep moat, generating the vast majority of its earnings. This isn't a story of fleeting trends, but of a company that has consistently turned its scale into superior returns. Over the past four quarters, Alphabet has generated an incredible $124.3 billion in earnings, with a profit margin of 32%. Such profitability is the hallmark of a business with pricing power and operational efficiency, providing the deep pocket of cash needed to fund its future ambitions.

This financial strength directly enables its growth strategy. With profits at this level, Alphabet can afford to take on big acquisitions and pursue risky, long-term initiatives that other businesses cannot. Its varied portfolio, spanning Google, YouTube, Waymo, and Gemini, creates multiple avenues for expansion. This isn't a single-product dependency; it's a diversified ecosystem where success in one area can subsidize investment in another. The scale and profitability allow it to maintain its position as a "growth beast," reinvesting its own earnings to compound value over the long cycle.

For the value investor, the key question is whether this power translates to a fair price for the intrinsic value being created. While the evidence here doesn't detail a current valuation, it implies the market recognizes the quality. The company's status as the second-most valuable stock in the world, with a market cap of $4 trillion, is a testament to its entrenched leadership. The continued investment in future growth opportunities suggests management sees a path for that value to expand further. This combination of market dominance, exceptional returns, and a capital allocation strategy focused on compounding makes Alphabet a compelling case for a long-term, durable cash generator.

Catalysts, Risks, and the Value Investor's Checklist

For the disciplined investor, identifying a durable cash machine is only the first step. The real work begins in understanding what could validate or challenge the long-term thesis. Each of these three companies presents a unique set of catalysts and risks that demand careful monitoring, all within the framework of seeking a margin of safety.

For Chubb, the primary catalyst is the continuation of its record-setting underwriting profitability. The company's combined ratio of 81.8% demonstrates exceptional pricing power and loss control. The key watchpoint is whether this discipline holds as the company grows premiums, particularly in its high-growth international segments. The risk is twofold: a major catastrophe loss, which could quickly erode earnings, and a prolonged softening in insurance pricing that would compress margins. The company's record $2.18 billion in current accident year underwriting income excluding catastrophe losses is a strong sign, but the margin of safety here is built on the assumption that such losses remain infrequent and manageable. Investors must watch for any shift in the combined ratio trend or a spike in catastrophe reserves.

American Express's catalyst is sustained premium customer spending. The business model relies on affluent, loyal users who generate high fees. The evidence shows resilience, with revenue of $53.2 billion rising 9% year-over-year through the first nine months of 2025 even as consumers pulled back. The risk is a significant economic downturn that impacts consumer credit and discretionary spending, potentially leading to higher delinquencies. The company's defensive quality is its moat, but the margin of safety depends on the durability of that premium customer base through various cycles. Watch for trends in cardmember spending and net charge-offs.

Alphabet's catalyst is the successful monetization of its new growth areas. While its core search and advertising moat remains dominant, the company's future compounding depends on initiatives like Waymo and Gemini. The risk is increased regulatory scrutiny on its dominant platforms, which could constrain growth or profitability. The company's financial strength is undeniable, with $124.3 billion in earnings over the past four quarters, but this very scale makes it a target for regulators. The margin of safety here is tied to the company's ability to innovate and navigate a complex legal landscape without sacrificing its returns.

The value investor's checklist, therefore, is one of disciplined monitoring. For Chubb, it's the underwriting combined ratio and catastrophe loss experience. For American Express, it's the health of its premium customer base and credit metrics. For Alphabet, it's the progress and profitability of its growth bets alongside regulatory developments. In each case, the goal is to ensure the business continues to compound intrinsic value, as the margin of safety is not a static number but a dynamic condition that must be preserved.