Campbell Soup’s Strong Competitive Edge and Attractive Free Cash Flow Position It as a Reliable Long-Term Investment

Building Wealth with Enduring Stocks

To achieve lasting wealth through investing, it's essential to focus on stocks that can reliably grow value over long periods. The foundation for this approach is straightforward but powerful: seek out companies with a strong and sustainable competitive edge, consistently high returns on invested capital, and a share price that provides a comfortable buffer below its true worth. This strategy lies at the heart of value investing, a philosophy made famous by Warren Buffett and his mentor, Benjamin Graham.

Understanding Economic Moats

The most crucial element in this framework is a robust economic moat—a lasting advantage that shields a company from competitors, much like a moat protects a fortress. This edge might come from brand strength, cost advantages, network effects, or regulatory protections. Such advantages enable a business to maintain superior profitability over time. According to Morningstar, companies with wide moats often benefit from factors like brand recognition, network effects, high switching costs, regulatory barriers, and economies of scale. These strengths translate into pricing power, steady profit margins, and the ability to reinvest earnings to further strengthen their position. In contrast, companies in fiercely competitive markets often see their profits eroded, making them less attractive for long-term investors.

Morningstar’s Core Stock Approach

Morningstar’s “core stock” methodology puts this philosophy into practice. Their chief US market strategist defines a core stock as one with a wide moat, stable cash flows, and skilled leadership—traits that signal a business capable of compounding value over time. The strategy is to acquire these high-quality companies when their shares are undervalued, ensuring a margin of safety. For example, Morningstar recently spotlighted Campbell's and Guidewire Software as standout core stocks for 2026, citing their strong competitive positions and appealing valuations.

Finding Opportunities: The Wide Moat Focus Index

The Morningstar Wide Moat Focus Index is a practical resource for identifying such opportunities. This index tracks companies with wide moats that are trading at the largest discounts to Morningstar’s fair value estimates. It’s an excellent starting point for investors seeking quality stocks at attractive prices. In a recent update, the most undervalued stock in the index was priced 41% below its estimated fair value. The index is updated twice a year to ensure it remains focused on the most attractively priced, high-quality companies. For disciplined investors, the process is clear: find the moat, evaluate the reliability of cash flows, and wait for a price that offers a margin of safety. This is how enduring compounders are discovered.

Case Study: Campbell Soup – A Model Compounder

Campbell Soup (CPB) exemplifies what it means to be a durable compounder, perfectly fitting the core stock criteria. The company has strategically evolved from relying on its iconic soups to becoming a more diversified consumer staples business. Today, soups make up only 25% of total sales, while snacks have grown to account for about 40%. This shift isn’t just cosmetic—it represents a fundamental change toward higher-growth, higher-margin categories.

Leadership has prioritized operational excellence, streamlining supply chains and manufacturing to free up resources. This efficiency enables Campbell to invest more in its brands, especially in the expanding snack segment, creating a positive feedback loop. The company is projected to achieve modest annual sales growth and mid- to high-single-digit earnings per share growth over the next decade. Most importantly, this disciplined approach has established a steady stream of free cash flow—the lifeblood of long-term investing.

Valuation is a key consideration. Morningstar estimates Campbell’s fair value at $60 per share, while the stock currently trades well below that, presenting an appealing opportunity for patient investors. This undervaluation suggests the market has yet to fully recognize the company’s transformation and future earning potential. For value investors, this gap between price and intrinsic value provides the margin of safety that makes the investment compelling.

Consistent free cash flow is what makes Campbell particularly attractive. As broader market research highlights, free cash flow is a reliable measure of financial health. It gives the company flexibility to reward shareholders, invest in growth, and withstand economic cycles. For Campbell, this predictable cash flow supports a strong dividend yield and the potential for continued dividend growth, while also funding strategic investments in snacks. In short, Campbell’s ability to compound value is now anchored by a more resilient and diversified cash flow engine—a hallmark of a stock worth holding for decades.

Case Study: The Struggles of Scholastic and Salesforce

This framework isn’t just about finding winners—it’s also about avoiding pitfalls. Scholastic and Salesforce are two examples of companies that, despite being profitable, lack the durable advantages needed for long-term compounding.

Scholastic, known for its children’s book fairs, has experienced sluggish growth, with sales increasing at just 4.9% annually over the past five years. Its operating margin is a thin 3.1%, leaving little room for error or investment in growth. Such weak profitability makes it hard to compete, innovate, or withstand downturns. Despite its current profits, Scholastic’s limited pricing power and operational challenges make it a risky long-term bet. Its valuation, at 24.1 times forward earnings, assumes a future that may not be realized.

Salesforce faces a different set of challenges. As a leader in enterprise software, it is now threatened by the rise of artificial intelligence, which could automate many of the functions its platforms provide. The Morningstar Wide Moat Focus Index lists Salesforce as a detractor due to this risk. If AI tools can deliver similar capabilities more efficiently, Salesforce’s high-margin subscription model could be undermined. While the company’s large customer base and network effects are significant, they may not be enough to fend off disruptive innovation. The market is already reflecting this uncertainty in Salesforce’s valuation.

Both companies illustrate the dangers of relying on profitability without a strong, defensible moat. Scholastic’s weak margins and slow growth point to a business struggling to maintain its edge, while Salesforce’s vulnerability to technological disruption shows that even dominant players can be at risk. For value investors, these are situations where the margin of safety is shrinking, making them less suitable for long-term ownership.

Evaluating Value and Catalysts

The ultimate test for any long-term investment is whether the company can efficiently grow capital and what events might unlock further value. For Campbell Soup, the key metric is return on invested capital (ROIC) consistently exceeding the weighted average cost of capital (WACC). This comparison reveals whether the company is truly creating value for shareholders. According to Morningstar’s approach, a wide moat should lead to high returns on capital, fueling compounding growth.

Campbell’s outlook is promising. Management’s focus on diversification and operational efficiency is designed to support strong ROIC. Steady free cash flow provides the means to reinvest at attractive rates. The main catalyst is continued execution—if Campbell can keep expanding its snack business and control costs, its ROIC should stay above its WACC, supporting the case for long-term compounding. The current undervaluation suggests the market hasn’t yet recognized these improvements, but a re-rating could occur as investors take notice.

For Scholastic and Salesforce, the risks are more pronounced. Scholastic’s low margins and slow growth indicate challenges in deploying capital effectively, making it hard to fund innovation or marketing without hurting profitability. The catalyst for Scholastic would be a significant turnaround in its competitive position, which is not currently reflected in its valuation.

Salesforce’s main threat is technological disruption. As a detractor in the Wide Moat Index, its future depends on whether it can innovate quickly enough to maintain its pricing power and efficiency. The catalyst here is not just executing a known strategy, but successfully adapting to a rapidly changing technological landscape—a challenge the market views with caution.

Conclusion: The Importance of Capital Efficiency

In the end, the key to successful long-term investing is capital efficiency. For Campbell, the expectation is that disciplined execution will keep ROIC above WACC, leading to a higher valuation. For Scholastic and Salesforce, the danger is that competition or innovation will erode their returns, reducing the margin of safety. Savvy investors must keep a close eye on these metrics, as they reveal whether a business is truly built to last or simply profitable for now.