Our Buffettology-based strategy, inspired by the principles in Buffettology and the investment approach of Warren Buffett, recently added three companies to its 10-stock model portfolio: Tractor Supply Company (TSCO), Paycom Software (PAYC), and KLA Corporation (KLAC).
This model seeks businesses with durable competitive advantages, consistent earnings growth, strong returns on equity and capital, conservative balance sheets, and management teams that allocate capital effectively. Once a company passes those quality tests, the strategy evaluates whether the stock can be purchased at a price offering an attractive long-term return.
Here’s why each stock made the cut.
Tractor Supply Company (TSCO) – Rural Retail Powerhouse (Score: 100%)
Tractor Supply has built a dominant position in the rural lifestyle retail space, serving recreational farmers, ranchers, and pet owners through a robust store network and growing online presence. It scores highly on Buffett’s key metrics, with a 10-year average ROE of 39.7% and ROTC of 27.4%, both well above the thresholds Buffett looks for.
Management has generated a 16.9% return on retained earnings and has reduced shares outstanding over the past five years. Based on current fundamentals, the model estimates a 15.1% average annual return over the next decade, making TSCO a classic Buffett-style long-term holding.
Paycom Software (PAYC) – High-Margin SaaS Compounder (Score: 100%)
Paycom delivers a cloud-based human capital management platform with sticky recurring revenues and a debt-free balance sheet. Its 10-year average ROE of 36.9% and ROTC of 33.1% show consistent profitability and efficient capital use.
Free cash flow is strong, management has earned a 25.9% return on retained earnings, and the model projects an 18.9% annualized return over the next decade. PAYC offers both quality and growth, fitting neatly into Buffett’s preference for capital-light compounders with pricing power.
KLA Corporation (KLAC) – Semiconductor Process Control Leader (Score: 86%)
KLA is a key supplier of process control and yield management solutions for the semiconductor industry. It boasts a 10-year average ROE of 89.1% and ROTC of 28.4%, reflecting a dominant market position and strong profitability.
While it falls short on the initial rate of return measure (3.18% vs. the long-term Treasury yield of 4.2%), its fundamentals remain impressive. Management has delivered a 24.9% return on retained earnings, free cash flow is solid, and the company actively repurchases shares. The model projects a 36.5% average annual return over the next decade based on current fundamentals, making KLAC an attractive, if slightly less-than-perfect, Buffett-style investment.
| Company | Score | 10-Yr Avg ROE | 10-Yr Avg ROTC | Return on Retained Earnings | Debt/Equity | Projected 10-Yr Avg Annual Return |
|---|---|---|---|---|---|---|
| Tractor Supply (TSCO) | 100% | 39.7% | 27.4% | 16.9% | ~0.0–Low | 15.1% |
| Paycom Software (PAYC) | 100% | 36.9% | 33.1% | 25.9% | 0.00 | 18.9% |
| KLA Corp (KLAC) | 86% | 89.1% | 28.4% | 24.9% | Low | 36.5% |
The Buffettology Edge
All three companies share the characteristics Buffett values most – durable competitive advantages, efficient capital allocation, and the ability to grow earnings consistently over time. Whether in rural retail, enterprise software, or semiconductor process control, these businesses have carved out strong competitive positions that can sustain profitability for years to come.
