About Us

We at DK Equities Research operate far removed from Wall Street on Main Street, USA. Our independence is furthered by the fact that we have no investment banking relationships with the companies that we follow, thus our buy/hold/sell codings reflect what we truly think as investors, on behalf of investors. We put out timely and consistent independent research on our universe of public companies.

We feature a slowly expanding universe of US-headquartered, principally multinationally-oriented firms — currently 15 — that we do primary research on. This includes quarterly results calls, building a rapport with key company officials, review of 10Qs/10Ks/proxies, creation of select earnings models, competitive appraisals, networking with other investors, analyst meetings, and conscious efforts to test corporate service/product claims in the US marketplace whenever possible. In short, we at DK Equities Research construct/expand a mosaic of knowledge so as to substantiate or rethink — if necessary — our own independent investment assessments, never forgetting about “caveat emptor!” In aggregate, our team brings together decades of analytical, client support, and brokerage experience.

Our efforts are focused on finding and then monitoring companies with the earmarks of sustainable differentiation (franchises), good returns on investment (ROIs), and favorable funds flow (to limit dilution risk) that are trading for materially less than estimated intrinsic value in the stock market (for additional detail on how we invest, please go to investment terminology). Commensurately, franchise stocks populate our research universe.

We estimate intrinsic value by deploying proprietary net present value (NPV) calculations and by making free cash flow-supported earnings assumptions about firms endowed with the earmarks of sustainable differentiation. Our discounting rate assumptions are duly conservative at 500 basis points (BPs) over 30-year treasury yields. In latter years, we raise the 500 BP-premium to reflect what we are convinced shall prove to be higher inflation rates. Our conservative discounting stance helps wring “earnings optimism” out of our estimates, adding a margin of safety to our valuation work.

Capital preservation is an integral part of our investment vocabulary. We know very well that if you make 50% on an investment in the first year and lose 50% of it in the second year, you’ll have to realize a 33% gain in the third year just to break even!

We’re neither market timers nor sector rotators; we take our cue first and foremost from shareholder value creation (led by free cash flow) and the projected sustainability thereof, believing that “value will out.” Separately, stock sale recommendations are price (enterprise value) relative to estimated intrinsic value driven.

We rate our research universe franchise stocks BUY, HOLD or SELL. New stocks are added with a BUY coding only and trade at a discount (margin of safety concept) of at least 20% to our NPV estimates when brought. If stocks reach our NPV estimates, triggered either by rising share prices or re-assessment of NPVs, they are "downgraded" to HOLD. A HOLD coding implies that a stock's long-term performance should be in line with our estimate of free cash flow-supported EPS growth. Once stocks exceed our NPV estimate by 10% - 20%, we place them on SELL (conversely, sharp price declines in the midst of sustained value creation dynamics will trigger coding upgrades if applicable). Why "tolerate" a certain premium to estimated NPV before moving to a SELL coding? Because while everything has its price, shares regularly exhibit 20% or more annual price volatility. We will wait until our franchise stocks pierce that volatility to the upside before recommending sale of the same. (Addendum: worsening fundamentals/erosion of earmarks of sustainable differentiation can also trigger downgrades.)

We consider ourselves and our clients/fellow investors as pro-rata owners where the time value of money coupled with favorable valuations give us better than even odds of earning attractive relative and absolute (“what can be eaten”) rates of return from stocks over time. Business owners don’t value their firms based on flavor-of-the-day emotions or near-term market cap swings; neither should we, other than to capitalize on related buying (when prices implode) or selling opportunities!

This style has been called “contrarian investing” by some, un-Wall Street like by others; we at DK Equities Research prefer to call it Common Sense 101. After all, would anyone you know jump up and down about buying a car that just went up 50% in price? That’s what Wall Street analysts frequently do when stocks go up by a similar magnitude, as ratings inevitably go from hold to BUY, the “safest gain” arguably secured by those investors that bought on price, not emotional considerations or popularity contests.

DK Equities Research’s price sensitivity (recommending purchase at a substantial discount to estimated intrinsic value or NPV) coupled with our “franchise stock” investment style allowed our equally-weighted US research stock portfolio to decline much less than the leading US stock market indexes over the past six years. Fact is, as per December 30, 2005, the Research portfolio showed an absolute pre-dividend gain of 22.2% over the same time period, comparing favorably with the S&P 500 (down 15.0% on the same basis) and the Nasdaq Composite (down 45.8%). Caveat: all numbers un-audited.

Conclusion: We think it would be fair to state that investors can no longer afford to simply “buy the market.” Stock picking looks increasingly important in today’s world. We hope, via DK Equities Research, to offer you constructive portfolio diversification research with good risk/reward attributes in a cost-effective, parallel interest manner. Our track record suggests that there is indeed “method to our madness.” Thanks for considering our service! We look forward to working with you and your institution on an interactive basis.

Sincerely,
The DK Equities Board of Directors

Dan Kurz, lead editor and board member