Two Wide-Moat Stocks for the Long Haul: A Value Investor's Perspective

The core of value investing is a simple, enduring principle: buy a business for less than it is worth. This requires two things. First, a wide economic moat-a durable competitive advantage that protects profits and allows a company to thrive through economic cycles. Second, a margin of safety, meaning the purchase price offers a cushion against error or misfortune. This is the filter I apply.

Two companies stand out for their moats. Bristol-Myers Squibb (BMY) is a large-cap biopharma with a pipeline rich with potential catalysts. Its moat comes from its established drug portfolio and the sheer number of late-stage clinical readouts on the horizon. Copart (CPRT), by contrast, is a global leader in a niche but essential industry. It connects buyers and sellers of salvage and used vehicles through its proprietary technology, handling over 2 million transactions annually across 11 countries. Its moat is built on unmatched scale, network effects, and a technology platform that competitors struggle to replicate.

Both companies possess wide moats. Yet only one currently offers a significant margin of safety. Bristol-Myers Squibb trades near the high end of its recent analyst price target range. Its analyst fair value estimate is US$58.13, a modest increase that reflects optimism about future pipeline contributions. The stock's valuation appears to already be pricing in much of that potential upside, leaving little room for error.

Copart presents a different picture. Despite its long-term success, the stock has declined sharply. It has fallen nearly 8% over the past year, with a sharp 25% drop in the last three months. This pullback, driven by broader market pressures and temporary concerns about costs and used-car volatility, has created a potential buying opportunity. For a patient investor, the current price may offer a margin of safety against the known risks, while the company's wide moat and global scale provide a foundation for compounding value over the long haul.

Assessing the Moats: Durability vs. Discount

The true test of a value investment is whether the company's competitive advantage is durable enough to compound value over decades. For Bristol-Myers Squibb, the moat is built on a pipeline of potential blockbusters. Its focus on immuno-oncology and other high-margin specialty areas provides a safety net against patent expirations. The company's wide moat is anchored by a broad portfolio of patent-protected drugs and an entrenched sales force. Yet the source of its future strength is its pipeline: analysts point to 12 registrational data readouts from 8 assets in 2026. These catalysts represent the potential to launch new therapies and justify higher valuation multiples down the road.

Copart's moat is different, built on unmatched scale and a proprietary technology platform. Its VB3 system connects buyers and sellers of salvage and used vehicles across 11 countries, handling over 2 million transactions annually. This scale creates powerful network effects and switching costs for both insurers and buyers. The company's technological edge, including AI-driven fraud detection and high-resolution imaging, has allowed it to dominate an estimated 50% of the U.S. salvage market. The durability of this advantage is proven by its financial results and long-term performance, which have driven cumulative returns of 925% over the past decade.

The key divergence now is valuation. Bristol-Myers Squibb's stock price appears to be pricing in much of that pipeline optimism. Its analyst fair value estimate has moved modestly higher to US$58.13, but the current share price is already in the range of recent price target increases. This leaves little margin of safety; the market is paying for potential, not a discount. Copart presents the opposite setup. Despite its long-term success and wide moat, the stock has declined sharply, falling nearly 8% over the past year. This pullback, driven by broader market pressures and temporary concerns, may have widened the margin of safety. For a patient investor, the current price offers a chance to buy a business with a durable competitive advantage at a more attractive valuation. The moat is there in both cases, but only one currently offers the discount that value investing demands.

Financial Health and Compounding Potential

For a business to compound value over decades, it must generate strong, consistent earnings and reinvest them profitably. Both Bristol-Myers Squibb and Copart demonstrate this capacity, though through different models.

Bristol-Myers Squibb's financial engine is built on high profitability. The company consistently delivers a robust net profit margin, recently reported at 21.11%. This level of earnings power provides a solid foundation for funding its extensive research and development pipeline. The company's wide moat-its portfolio of patent-protected drugs and established sales force-acts as a durable cash cow, allowing it to weather the inherent uncertainty of drug development. This steady income stream is critical for a biopharma, funding the costly, high-risk trials needed to bring new therapies to market. The recent analyst commentary notes that the market may be discounting many late-stage candidates, suggesting the company's current earnings power already supports a valuation that leaves little room for error. For compounding, the key will be converting this profitability into successful new product launches.

Copart's model is one of high-volume, low-marginal-cost operations. The company's revenue of $4.24 billion in 2024 is driven by over 80% from high-margin service fees. This is the hallmark of a scalable platform business. Each additional transaction adds to revenue with minimal incremental cost, leading to exceptional cash generation. That cash flow fuels reinvestment in its proprietary VB3 technology and global network, further widening its competitive moat. The business is resilient because it operates on a massive scale, handling over 2 million transactions annually across 11 countries. This scale creates powerful network effects and switching costs, making it difficult for competitors to catch up. The model is simple and repeatable: more vehicles totaled by insurers means more auctions, more fees, and more cash to deploy.

A sound balance sheet is a non-negotiable trait for enduring through economic cycles, and both companies possess it. The Morningstar Wide Moat Focus Index, which tracks high-quality, undervalued stocks, explicitly includes companies with sound balance sheets as a key characteristic. Bristol-Myers Squibb's balance sheet supports its R&D ambitions and provides a buffer against sector volatility. Copart's model, which includes a debt-free balance sheet, provides even greater financial flexibility. It can navigate periods of used-car market uncertainty without the burden of interest payments, allowing it to focus on long-term growth and technology investment.

The bottom line for compounding is that both companies have the financial health to do so. Bristol-Myers Squibb's wide moat funds its pipeline, while Copart's platform generates cash to expand its scale. Yet the valuation context remains critical. Bristol-Myers Squibb's high profitability is already reflected in its price, offering little margin of safety. Copart's financial strength, combined with its recent price decline, may offer a more attractive entry point for a patient investor seeking to buy durable earnings power at a discount.

Catalysts, Risks, and What to Watch

For any investment, the path from today to tomorrow is defined by catalysts and risks. The patient investor must identify the specific events that could validate the thesis and the metrics that signal when the moat is being tested.

For Bristol-Myers Squibb, the primary catalyst is clear and time-bound: the outcome of its 12 registrational data readouts from 8 assets in 2026. These pipeline milestones are the source of the recent analyst optimism that has nudged the fair value estimate higher. Favorable results could unlock new launch opportunities and justify a higher valuation multiple, potentially closing the gap between current price and intrinsic value. The risk, as some analysts note, is that the market is appropriately cautious, and execution around these readouts carries inherent uncertainty. The investor should monitor the progress of these trials and the company's guidance for any shift in the timeline or probability of success.

Copart's setup is different. Its risk is cyclical and macro-driven: a prolonged downturn in the used and salvage vehicle market. The company's model thrives on volume, and a sustained slowdown in total-loss claims or used-car price volatility could pressure transaction volumes and, consequently, revenue. The recent sharp 25% drop in the stock over the last three months reflects these market concerns. The catalyst for Copart, therefore, is stabilization or growth in that underlying market. The investor should watch for signs that the company's transaction volume trends are holding firm or improving, which would signal its wide moat is not eroding and its platform remains essential to insurers and buyers.

In practice, the metrics to watch are straightforward. For Bristol-Myers Squibb, the focus is on the pipeline calendar itself-each data readout is a potential inflection point. For Copart, the key operational metric is transaction volume, a direct measure of the health of its core business. Monitoring these will provide the evidence needed to assess whether the company's durable competitive advantage is compounding as expected or facing new challenges.