On to business…

I have held this stock for almost an year and it is my largest position. In fact, I am buying more. In their last quarterly call, the management announced they confirmed my suspicion. The company has no debt, a solid 100+ years of operation, 12-14% ROCE, sensible management and the whole works.

And no, they are not in rural Japan or a microcap that makes an industrial part no one can spell.

They are a mid-cap in Canada.

And the best thing, the stock price is still at where I bought it. So if you get in now, you’re going to pretty much get what I got an year back minus the dividends along the way.

The catalyst I had wrote up in 2025 seems to be materializing and I think in next few quarters the announcement would come. By my estimate, the fair value of the stock should be 3-4X from current prices.

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H&R Block commentary de-risked some of the issues I had highlighted in my previous article. I will address another misconception that has been weighing down on both the stocks (No, I am not talking about AI). Many investors frequently get them wrong. Knowing the difference will guide if you are owning a value-trap or missing out on a compounder.

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In this article, I cover

1. Intuit vs H&R Block FY26 Performance

2. Intuit vs H&R Block Strategy

   1. Where are they playing

   2. How are they winning

3. Which one is a better investment

   1. Capital structure & Allocation

   2. Management capability

   3. How does Intuit and H&R Block look in 10 years?

Intuit vs H&R Block FY26 earnings

H&R Block US Tax Return revenue is $3.45B, up 4.7% Y/Y. The core US-tax assisted revenue is up 6.1% to $2.56B. This is from a 2% increase in volumes, 4% increase in net-increase charge per customer (NAC). NAC is an average number so the price increases and customer mix affects it. NAC is up 4% from a 3% increase in price and 1% increase in mix. The increase in assisted-volume is offset by lower royalties from franchises. The increase in US tax assisted volume is from acquiring franchises which basically shifts revenue from one line item (royalty) to other (US-tax assisted revenue). But if you look at company-owned + franchise, volumes were flat with a 0.1% decline. This compares to overall 0.6% volume growth to 75.3M professionally-filed total tax returns in US.

Intuit has other businesses like CreditKarma, Quickbooks and Mailchimp. To compare against H&R Block, we will only look at how their TurboTax has performed. In FY26, TurboTax revenue is $5.3B, 7% Y/Y. Total tax return volume is 39M, 2% decline in volume growth. This compares to overall 1.7% growth in self-prepared e-filed tax returns in US which is now 65.7M.

H&R Block has guided 5-6% growth in revenue, while TurboTax is expected to grow 2-3% in revenue next year. Intuit has more than 50% market share in the DIY (self-prepared) tax return market while H&R Block has 12% market share in the professionally-filed returns.

If we want to find out were to invest, we have to step back from how the market is reacting and unpack both these businesses and ask where are the two CEOs planning to take their company to. And it couldn’t be more different. The two companies are completely different in their go-to-market strategy and the customer they are targeting. Then, we will tie it all back together to get a 10 year outlook on the companies.

Competitive Strategy - Where are they playing and How are they winning

In my previous article, I had noted one of the biggest risks facing H&R Block - The low to middle income customer segment who are more prone to switching to lower cost or free alternatives. In Q4 2026 earnings call, this was majorly de-risked as the customer segment earning $50k-$200k has gone up from 38% to 50%. Second, I had noted the money in tax-return business was never in the simple tax-returns. It was always in the complex ones, where customer has multiple sources of income, assets and rebates. The more complex the return, more money is charged while the costs remain the same. Management is going after this segment because these customers have a higher lifetime value. Even though it is harder to acquire them, once acquired, they tend to stay on longer.

I had also noted that Intuit had more customers in the high-income segment and they would face lesser competition from the cheaper alternatives. I was dead wrong. In fact quite the opposite. Intuit called out that they were losing quality customers in DIY segment and they plan to be more price-competitive to regain share. An euphemism for “We are going to reduce prices”.

Historically, our DIY model optimized for tax revenue and ARPC through pricing and upgrading customers into higher-value offerings over time. That model works for many years, but the market has changed. Consumers have more low-cost alternatives, and we lost quality DIY customers to low-cost providers this year. Price is now the #1 reason customers leave TurboTax.

This approach also changes how we think about the economics of the customer relationship. This means we are deliberately accepting lower initial DIY tax ARPC to acquire and retain more quality customers, grow e-file share and create greater lifetime value as they engage across the consumer platform

Sasan Goodrazi, CEO Intuit, FY26 Conference Call

The freemium business has reached its limits and the market volume is not going to grow much. I expected Intuit to double down on the offline strategy to go after the high-income complex segment that H&R Block is going after. Especially their 200 pilot offices felt like a good start. My guess was this would increase the competition in the offline arena significantly. Instead, Intuit is doubling down to go after the same segment they have historically gone after, who currently are switching to lower cost alternatives. Worse, they are lowering prices to attract them back with the hopes that their AI investments would re-attract and retain their lost customers. I was surprised that the subject of offline presence did not come up in the call either from the management nor from the analysts.

My thesis since I started covering H&R Block and Intuit was that complex tax-return customer cannot be acquired through the SaaS channel. In case of more complex returns, customers want a human to interact with and form a relationship with. In many ways, the tax-return SaaS solution works brilliantly for the large simple-return format but the profit now is in the complex ones which are still in the old-age offline mode. The profit pool in simpler tax-returns will shrink as cheaper alternatives scale. This undercuts the AI discussion completely. If SaaS cannot enter this segment, neither can AI.

From a customer journey, both the companies are again diverging. Intuit is looking to broaden the top of the funnel even further. Their trust in freemium model continues where if we they get enough people into the door with a free product, eventually some of them will upgrade to paid services like TurboTax live and others. Some of this is because Intuit bundles CreditKarma, TurboTax into one offering. Their idea is they can eventually cross-sell and upsell to customers in each segment.

I think the confidence to double down is because the model has worked so brilliantly till now that there is an innovator’s dilemma to drop this model and go after the offline market. And I suspect this is only reinforced because their Quickbooks segment, which sells tools to accountants, continue to work so well with the exact same model. But the key difference is switching costs. Accountants will use the same tool every tax season but individuals can easily switch providers every year, which means Intuit has to re-acquire them every year. While they pioneered e-filing which led to their double-digit growth historically, that growth engine is sputtering as they have cornered the market. And worse, the lower-cost alternatives and free providers are attacking the same market. Intuit’s response is to double down with lower price , bundling with CreditKarma and AI-features. Lower price is going to pressure revenue and it is not clear to me if AI-feature really helps conversion.

H&R Block management is looking to improve conversion from walk-ins to paid customers which is to expand the efficiency of bottom of the funnel. They are investing in services like Second Look which is a free last 3 year tax-return review, omni-channel experience and local leadership all through the year, not just for the peak-tax season. CEO Curtis had an interesting example. SecondLook was a feature H&R Block had for years but accountants would seldom offer it because it involved quite a bit of work for the accountant to go through 3 years of tax returns. But with AI investments, this workload is considerably lowered. Customer retention rate after using SecondLook increased 6% this year. In addition, H&R Block has been acquiring franchises opportunistically for the last 10 years. I suspect this is less opportunistic but rather a roll-up strategy. In FY26, they spent $57M in acquiring franchises. With a bit of back of the envelope math, they likely acquired around 150 franchises at around 3 times profit. At this valuation, the return on investment is close to 20%. The issue with any franchise has always been that H&R Block does not control the client experience in these franchises while they still bear the name. For the customer who walks in, they do not know or worse care if it is a company owned office or franchise. Yet they can walk away with completely different experience. If the end goal is customer retention and conversion, a roll-up strategy is less an investment exercise and more a lever for the overall strategy. This year the themes of the conversation was all about going from a transactional to a more consultative relationship.

In the end, Intuit seems to be a victim of its own success. They are going after a customer segment with sole focus on growth but that growth is increasingly fragile. The alternative of going offline is equally an investment heavy exercise. Something the market will not appreciate when the stock is down 45% last year. H&R Block is focusing on growth that will not be apparent now but works well in the long term if they can pull it off. Ultimately this would lead to a stronger franchise and a stickier customer base.

Which one is a better investment?

I think H&R Block is a better investment. HRB trades at 9 times free-cash flow while Intuit trades at 24 times free-cash flow after adjusting for $2B stock based compensation. HRB returns almost all of its free-cash in buybacks and dividends. The great thing about buybacks is HRB repurchases mean a lot more because their shares are cheaper.

In 10 years, assume HRB grows their earnings at a very conservative 5% and continues to buyback around 7% of their shares every year. Then total shares outstanding would be cut down by 50% and their EPS would be 300% higher than what it is now. If the multiple expands from 8.6 times earnings to 13 times over the decade, that alone gives a 4.6X return, 16% CAGR. The path to this is simple. Overall tax return volumes should continue growing at 1-2% and they should be able to increase NAC by around 3-4% from price-increases and going after the upmarket. Ideally this would increase their margin profile also as their cost-basis is intact while the NAC goes up, which falls straight to their bottom line.

The 4.6X return does not include any of that.

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Li Lu is the money manager that Charlie Munger trusted his money with and likely the first money manager that Munger felt comfortable investing his family fortune with outside Berkshire. The filing for Himalayan Capital showed a new buy. So if Li Lu bought it, I take a second, third and maybe even a fourth look. This is a small position for him. 1.61% of his US portfolio. Who cares. This is a guy who rarely buys a new stock. If he is buying, I am looking.

I must tell you the company we are discussing today is slow grower. It grew revenue at 2% per annum for last 10 years.

But it grew their EPS 400% over the same period, thanks to magic of buybacks. This is a company that no one wants to look at because they are not the flashy semiconductor company. DaVita (one of my recent picks) is one such company where the core business continues to grow slowly while they funnel everything into buybacks. Best of all, this company is trading at 8.8 times free cash flow, with very minimal debt. AI fears brought theirs and their competitor’s share price dwindling.

The bet is simple. If the core business chugs EPS growth at 5% (2-3% revenue growth, margin expansion from scale) and the business continues to buyback shares, you are looking at a 3 bagger in 10 years (dividend excluded). This is even if the multiple does not expand. If the multiple over 10 years doubles from 7 times EPS to 14 times, then it becomes a 5 bagger + lots of dividends along the way.

Hopefully I have teased you enough. Let us get into this business.

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H&R Block is a $5.8B midcap company that offers assisted and DIY tax returns. The main customer segment are people who would like a human to do it for them. Their main competitor, Intuit is different. Intuit offers purely a digital product for filing tax returns called Turbo Tax. H&R Block has defended their share against Turbo Tax, roughly growing total return volumes by 1% (almost same as the overall industry). However the net revenue per return has grown at 2% over the same time. The margins have stayed high (20%+ EBIT) for last 10 years and their capital allocation is sensible. They give both a dividend and have been buying back shares (249M outstanding in 2016 to 129M currently).

H&R Block - Business Model

The main business of H&R Block is assisted tax-return and DIY tax return. They also have Spruce, a mobile banking platform and a growing tax solution business for small and medium business customers. The biggest revenue generator is assisted tax-returns where customers walk into one of their 9000 offices across US and get their taxes filed. H&R block owns almost 7000+ of their offices and 2000 franchise offices where the franchisee pays 30% of their gross revenues as royalty. Over the last 10 years, H&R Block has been buying back franchises and expanding their company owned model. The DIY model is an online platform, much similar to Turbo Tax. The DIY business has grown volumes at 3% over the last 15 years but frankly it wasn’t their biggest focus till 2017. When Jeff Jones became the CEO in 2017, he changed the company strategy to focus more on digital services, expand product lines into focusing on SMBs and a mobile banking division. In 2026, he retired and will now be replaced by Curtis, who joined HRB in 2024 (who also happens to be ex-VP in Intuit).

While the new business ventures are still growing, the proverbial golden goose is still assisted tax-returns. H&R Block and Intuit might look similar on the surface but target completely different demographics. H&R Block caters to the customers who still want a human to help them, mostly under-banked communities. Most of their customers earn less than $80,000 annual income. Their earlier services included Emerald cards into which the refunds can instantly be deposited, and refund based loans. Even their current banking platform Spruce is looking to deepen their roots into this segment. Intuit, on the other hand, has been explicit about moving to higher income demographics. Being an online-only freemium model, their chances of revenue conversion is higher in the high income segment. So in a way, Intuit is clearing up room for H&R Block to take up market share in their core customer demographic.

Tax-Return Unit Economics

In 2025, over 152M tax returns were filed by individuals. Of this, 69M were filed electronically. Of the 152M, 39.2M filed using Turbo Tax and 17M filed using H&R Block. But to truly understand the business, we need to get into the unit economics.

Currently H&R Block earns $270 per tax-return on company assisted returns and $43 per tax-return through DIY. From franchise, they earn $72 per tax-return. But this is not an apple-to-apple comparison as the franchise revenue is pure profit, while for company assisted ones, they still have to pay leases and wages. And on top of this, they earn around $17 per return from add-ons like Emerald Cards, refund-transfers and refund-guarantees. But this add-on could just about come from company-offices, franchises or software. Given how much control they have in company-offices, my guess is a significant chunk of the add-on revenue comes from company-office. But we don’t know the split and for the unit economics, we can assume it is a wash between franchise and company-office. Taking away the cost for compensation and lease, assisted-returns earn 20% margins, ~$55 contribution profit per return. This is much lower than the $72 per return they earn from franchise. If we assume 50-60% of the add-on revenue comes from company-owned offices, that would come to $20-24 per return. So the contribution profit per return jumps to $75-79 per return.

The second big advantage of acquiring franchises is the ability to control customer experience. A point that H&R block management has been explicit about improving. Customer experience helps convert the walk-ins to paid. At franchise level, the incentives are just to increase revenues since they just pay 30% of gross receipts. But in a company owned office, H&R block has higher odds of conversion and building a longer lasting relationship with potential to upsell and cross-sell. Especially with their broader set of financial services (Spruce), it is critical for H&R block to own the customer relationships.

Competitive Strategy - What is Intuit doing

To date, Intuit has followed a completely different path. They started Turbo-Tax as an online-first solution and the revenue was generated when customers opted in for premium features. Since 2025. Turbo Tax has joined the offline bandwagon too. They piloted 200 offices in California in 2025 Tax season.

"What we learned during 2025 is there was a large percentage of customers that wanted to meet with us in person," Notarainni (EVP Consumer Insights, Intuit) said, adding that for some customers, an in-person meeting is necessary to establish trust. He cited in-house research showing that customers searching online for help are five times more likely to book an appointment with a professional expert if they are within a 50-mile radius than those who don't have access to a local tax professional.

At the outset, it might appear this to be a big win for H&R block. Their office-network is already magnitude larger than Intuit and their leasing costs are amortized. However, Intuit joining the offline game means the competition is heating up in retail space as well. Intuit is offering a flat $150 as promotional office for store walk-ins as well. The key question for H&R block in next couple of quarters is if they are ceding or defending their market share. All that would boil down to 2 things - Customer Trust and Experience.

No matter what the companies talk about on AI front, the single factor in my reading of 15 years of H&R block annual reports is that customer trust and experience plays an outsized role in gaining and defending tax-return volume.

The tax-return market volume is not growing more than 1-2% per annum. So the growth for H&R Block has to come from add-ons, price-mix instead of volume. These customers care about error-free (both offer full-refund in case of errors) tax filing that happens as quick as possible. Afterall who wants to spend an additional minute on filing taxes.

However where I do get a bit frightened is H&R Block core customer is from middle-to-lower income segment. Some of them are unbanked. Compared to Intuit’s customer base, H&R Block has a higher risk of the customer erosion to free and lower-cost alternatives as the macro pressure intensifies. Intuit customers to a larger extent are higher income, more discerning and likely have higher complex tax returns. But both will face the pressure of erosion from lower customer segment. The question who faces that pressure more?

The 10 year view

What does H&R Block look like in 10 years is genuinely a hard question. The initial value implies at 11% free-cash flow yield. At this rate, we need around 8-9% growth for a 20% return (Total return = Initial yield + growth). To unpack the 8-9% growth is important. This could come from multiple places - improved price-mix (from add-ons), increase net-average charge (simple price increase) volume and buybacks. Honestly that part is easy. A 2-3% price increase, 4-5% from share-buybacks and 1% volume growth can comfortably place H&R Block at 8-9% growth rate. However everything depends on tax-return volume. The business has multiple revenue streams, all of which is linked to a single variable - volume.

None of the above can happen if H&R Block cannot defend and grow volumes. With the competition heating up, erosion to free/lower cost alternatives at the lower-income customer stack, we need to see what Curtis gets up to. This is not an investable right now. But now that we know so much about H&R Block, we can follow this for next couple of quarters and find out.

Unfair Advantage readers get special invite with a discount code to attend the upcoming Ben Graham Centre’s European Value Investing Conference and Seminar. The keynote speakers are Tom Gayner (Markel), Robert Vinall, David Samra and more!

The conference is happening on 17th September, 2026 in Munich and I am so excited!

There is also a 5 day value investing seminar by Dr. George Athanassakos who leads the Value Investing conference. This seminar would be from 10th September - 15th September. I am also attaching a discount code for that.

Buy Conference Ticket - Use code: UnfairAdvantageC (€100 off)

Buy Seminar Ticket - Use code: UnfairAdvantageS (€500 off)

PS: I am not paid to do this. I am sharing this because I truly believe there is a lot of value (pun intended) in meeting this community.

If you are new, you should know how I picked these 6 names.

First, shortlisting the names

The filters I use are very simple. I look for conditions to reject a company rather than selecting. The ones that are not rejected, end up in my shortlist.

1. First level of filtering:

   1. Companies not in my circle of competence - Banks, Insurance, Crypto, Bitcoin miners etc.

   2. Companies that are not earning any revenue - Development companies, new-age companies that are public before earning revenue

2. Second level of filtering:

   1. Companies in industry where there is no guarantee of sustained demand growth - Junior gold miners etc. are great examples of this

   2. Companies with history of loss, cash-burn

3. Third level of filtering:

   1. Companies with history of diluting shareholders or highly leveraged

   2. Companies that do not add any positive value to society - Gambling, Guns, Ammunition

The shortlist had 101 names. 4.5% hit rate.

The next task was to go through these 101 names. This time I pulled their annual reports and started reading. It is when I start looking for things I missed earlier - one time earnings boost, customer concentration risks, capital needs etc. Some get simply rejected because I over-estimated my ability to understand their business.

The final list had 6 names. We are now down to 0.3%.

This list has 6 stocks that are already filtered out and looking attractive both on a valuation and business quality basis. Then a baby came. I did not look at stocks at all and two weeks back I opened my spreadsheet and started going through the names.

In hindsight, the break let me look at all these names with fresh eyes. From 6, I found 1 that is a no-brainer. Every thing else had some sort of hair - Too much debt or too many acquisitions or too little organic growth. So they all went to the bin.

This is that one stock.

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For all those who joined Unfair Advantage in the meantime, Welcome. The last few weeks have been bit of a blur and I did not look at my portfolio. But it is nice to see DaVita up 70%, Crocs up 44% and Pandora up 60%. Cogent and Leon’s seem to be waiting for next quarterly results before any noticeable price action. I haven’t looked at overall markets for a while but I doubt the story has shifted (?). I did manage to read Terry Smith’s letter while taking a longer than usual toilet break. Quite shocking to see a value based fund explicitly change their approach to momentum based investing. It is truly a tough time.

The company I am writing today is a mid-cap ($1-2B range) with 15%+ returns on capital for last 10 years. That in itself is an achievement and worth a deeper look.

Surprise surprise. I found a 100 year old ‘boring’ family owned business.

There are so many qualitative things that got me more interested as I started reading their annual report. They report 10 year financials in all their disclosures. Their corporate website has not changed since the 90s. They do not care about marketing their stock or spend another dime into it which can rather be reinvested into the business. Despite the family owning more than 50% of the business, the investor presentations go in to exhaustive details about the business. These are signals that the management thinks long term and cares about their shareholders. Their earnings calls has 1 analyst from a small research house (not a big bank) attending them. Yet they are a mid-cap company listed in NASDAQ GS.

Historically, this company has been selling nuts like peanuts, cashews, walnuts etc. Pounds sold has grown at 3.5% over the last 10 years. Unlike other nut-producers, they are vertically integrated, which means they buy the nuts with shell on (which is much cheaper) and they de-shell and peel it at their facilities. This makes them one of the lowest cost operations in the nuts business while others procure the cleaned, deshelled ones.

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On Monday morning, my wife’s water broken. By night, we welcomed our daughter who decided to show up 3 weeks early.

It has been nothing short of amazing. I have been speed learning how to change a diaper, feed her and burp her. So I have had little time to look at markets except for an occasional look at the prices.

I see the semiconductor memory trade hasn’t broken yet. Oil prices are down. It feels like people are selling value to buy the semis and a rotation is going on? My portfolio seems to be up when market is down and down when market is up.

Instead of giving you what I think, I wanted to ask what do you think has changed this week? Help me get up to speed. Are there some stocks that look interesting? Drop it in comments. Even if you have tips for a new dad, share it!

Thankful as always,

AK

I live in Ireland with my wife, 2 dogs and a baby on the way. For my 9-5, I work for a semiconductor company and investing is my 5-9.

Before this, I used to be a management consultant with Bain & Company working mostly on competitive and growth strategy & Private Equity deals. My experience at Bain formed the fundamentals of my investing approach & philosophy.

Working at Bain, I learnt 2 important skills. One, creating these mental-models to think about a business -How does product, marketing, supply-chain, distribution, consumer demographics work together, where are the strengths in the model vs weaknesses. Second, was the ability to do very in-depth research. In consulting, the junior analyst is always given the grunt work of combing through pages and pages of reports. Over time, this built what I call the research-stamina. An ability to do grunt work as far as I have copious amount of caffeine in me.

I do not have experience working at a fund or a trading desk. So when I began investing, I started to use what I learnt from my experience at Bain. Instead of thinking like an financial analyst, I started to think like a consultant, asking questions like - What is the revenue model? How does the marketing work? How is the supply chain like? Over time that became my style - Attacking the core investment problem from the business model side.

My investing approach - The clue is never in the 10K

My research starts with reading 10Ks but to answer What is the business model, I need to look at other places. I start reading books on the company, biographies of their CEO, arcane unknown interviews that lie in a forgotten corner of the internet and talk to customers, ex-employees. 99% of the time this yields nothing but sometimes I find a clue. When a CEO or CFO makes a passing remark that rings the bell, I begin to pull the thread. Once I get the hint, I start to put together the pieces like a 1000-piece jigsaw puzzle.

For example, I found an interview of ex-CFO of Crocs in a trade journal who said this

Our senior vice president of product development came up with the idea around Thanksgiving, and it was in our stores by Memorial Day. It stayed just in the retail stores all summer, and it did very well.

This was the penny-drop moment. While every other footwear company was launching 2 collections a year, Crocs had a much faster design-to-shelf time. Then all it took was going through Crocs’ Instagram account. A new collab every single month.

Another example was Leon’s Furniture which is planning to spin-off their owned real-estate on which their stores sit. Using Google Maps and a Canadian real-estate listing website, I looked up 44 stores, their location, calculated the square-footage to assess their value. Turns out half their stores are prime downtown real-estate and a quarter of the stores in the suburbs are next to a Walmart or Costco. Essentially they are sitting on valuable retail land which was not in any 10K. I didn’t need a management call or a special analyst report. It was lying in Google Maps for anyone willing to do that grunt work.

An unique business model usually is a company in an well established industry but doing something different. Crocs, for example, uses an integrated supply chain which allows retailers to order as low as 24 pairs so that they seldom have to discount it to move inventory. DaVita has a culture-first approach so that they have the best skilled staff in their dialysis centre which keeps costs low, while their competitor faces extreme attrition and misses out on 30 percentage points of ROCE.

As I began to write, I started to notice many investment funds does not look so deep into a business. Even funds holding Crocs do not talk about how their product is essentially a single moulded resin which helps them automate all of the production process leading to industry leading gross margins. This is a gap that Unfair Advantage is all about.

One of the new stocks I am working on is Domino’s Pizza. After about 2 years of ordering pizza almost every month, I began to wonder why do I like Domino’s so much? There is something about their operations and product that drastically reduces the cognitive load of ‘What is for dinner today’ discussion in the most consistent and predictable way. Maybe there is something there to unravel.

My approach will mean that I won’t cover deep-value picks, balance sheet based investing. I have done them in the past but those were far and few. The mispricing I look for is not in the income statement or balance sheet. It is in the business model that is not immediately obvious.

Frequently I try to look at companies going through some trouble. This often means I have to live with a lot of volatility. Stand out examples are my investment in Spotify when they went through their investment phase in podcasts. After I invested, my position was cut in half. I was sitting with -50% in unrealized losses for 2.5 years in the 3 years I held. I later exited the position for a ~300% gain.

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My portfolio

I am sharing this because a lot of readers have asked me for it. I have a very concentrated portfolio. To give you the lay of the land, I will divide my portfolio into 2 categories - Core Positions and Asymmetric Bets. Core Positions are typically large positions where I am fairly certain about the long-term of the business. Asymmetric bets are typically companies early in their life cycle, special situations. Sometimes I take a small position in a company that I really like but the valuations are not in cheap territory.

Core Positions

• Cogent Communications (Started buying late 25 and 2026, -20%)

• Leon’s Furniture (2025 position, +1-2%)

• Microsoft (2020 position, +66%)

• DaVita (2026 position, +48%)

• Crocs (2026 position, +44%)

• Alpha Metallurgical Resources (AMR) (2023 position, -23%)

• Occidental Petroleum (2024 position, flat)

• Fairfax India (2025 position, flat)

For all of the above, except Microsoft and AMR, the write-ups are available on Unfair Advantage Substack. My picks span across multiple industries but the underlying theme is the same. There is something unique about the business even if they are in a commoditized industry. Occidental has the 2nd largest CO2 pipeline for enhanced oil recovery which means they can get more oil out of Permian at a cheaper cost compared to others. Fairfax India owns 74% of India’s fastest growing and best run airport.

I do not foresee myself managing money for outsiders and plan to invest my savings into businesses I understand and where I have a clear picture of their long-term performance. Over time, I have become accustomed to volatility and now expect every new position of mine to at least go down by 25-30%. Francis Rouchon of Giverny Capital calls this the Rouchon Effect. Us value investors are right about a business but frequently early.

Asymmetric Bets

• Kaspi

• Novo Nordisk

• Pandora

• FutureFuel

• Wise PLC

• Hermes International

• Ferrari

• JD.com

• AMREP

• Copart

These are all smaller positions for different reasons. Some, I am not comfortable with the valuations like Ferrari, Hermes and Copart. Others, there is a bit of hair on the deal like Kaspi (I honestly can’t say how Kazakhstan will evolve) or JD.com (who knows when CCP will pass the next regulation). Wise, Pandora, Novo Nordisk are looking attractive to become core positions soon but it depends on how the next couple of quarters will get. AMREP is land-bank based out of New Mexico that they own for almost half a century now. Half the market cap in cash, around 10 times earnings and just got approval for a 278 houses to be built.

Why I started Unfair Advantage

I started to write this newsletter to be read and connect with other serious individual investors and funds. My network before was only burnt-out ex-consultants and a few investment bankers who were constantly overworked. The other added benefit of writing is it helps clarify my thoughts, identify gaps in my thinking.

When I started, I was quite sure this newsletter would be me writing into the void. I never expected to hit 1,200 readers. Much less, I did not expect family offices and funds to follow Unfair Advantage. In fact this year, one of my heroes (hint: He owns Alluvial Capital) subscribed. In my books, I call it a win.

If my way of thinking appeals to you, then you should subscribe

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The share price price dropped from $15 per share in 2021 to $4 per share today. 80% wipe out in value.

In 2024, this company was a value-investor favourite till it took a deeply unpopular decision. But those times are behind the company and they are back on track. Yet no one believes they will get there. The ones who had invested over last 4 years have seen their money vaporize and have moved out of the picture. Last time analysts covered this stock was in 2015. The new ones looking at it only see falling revenues, negative gross margins. They now lie in this limbo.

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At the start, Natural Grocers story sounds like a hippie fever dream. Margaret and Philip Isely, were early proponents of the connection between health and the use of natural and organic products and dietary supplements. In the mid-1950's Margaret transformed her health and the health of her family by applying concepts and principles she learned from books on nutrition. This inspired the Iselys to provide the same type of nutrition education to their community. The Iselys started by lending books on nutrition and providing samples of whole grain bread door-to-door in Golden, Colorado and subsequently concluded they could develop a viable business that would also improve their customers' wellbeing. Over time, they fostered relationships through nutrition education and began taking orders for dietary supplements, whole grain bread and unprocessed foods. As their customers gained more knowledge about nutrition , they were empowered to make changes to their diets with the objective of supporting their health. Using this model as the foundation for their business the Iselys opened their first store in 1958

Natural Grocers has grown their revenues around 7% CAGR over the last 10 years. With scale, their profitability continues to keep going up. Net income is up 4x over the 10 years while revenues are up 2x. Natural Grocers has been growing their daily comparable store sales for the last 22 years with no down years. This is quite an achievement given over the last 22 years, the economy was hardly growing in a straight line. In 2019, the board instituted a dividend policy and currently the stock has a 2% but growing dividend yield. The last quarter dividend grew by 25% yoy.

Management is planning for 4-6% store count growth for the foreseeable future which tells me they also believe the runaway ahead is long and strong. Nat Grocers cracked the supplement model and are looking to replicate it across the nation (more on this later). 72% of their revenue comes from groceries like Organic Sourdoughs and Free-range eggs. 19% comes from supplements and rest 9% from Body-care etc. Most natural grocers shops are next to conventional grocery shops so people can buy both their regular groceries and top it up with the organic health-stuff at Natural Grocers next door. Natural Grocer is the single shop for almost all your supplement needs. They stock 22,000 SKUs out of which 6,500 SKUs are just supplements. 30% of their shelve space is for Vitamin supplements even though it forms only 19% of the revenue. But I guess they make more on EBIDTA margin through these supplements.

Most customers look like a deer caught between the headlines in the supplement aisle. Half the names are unpronouncable and sounds like greek and latin. After all, what does Ubiquinol do? Most of these supplements are banned from adding benefits on the bottle because that would amount to promising a customer. So the supplement has a natural education problem that Natural Grocers solve. Natural Grocer has an unique model that enables them to sell supplements in a way that most others can’t. All Natural Grocers stores have a Nutritional Health Consultant (NHC) in each store who is academically qualified to educate, help customers in picking the right supplement and is also involved in training the store crew. If you have been to get any supplement, this is not the model you would typically see. Pharmacies which stock them cannot afford a dedicated person just to sell 2-3 shelves of supplements. Grocery stores also allocate very minimal shelf space to supplements. Even supplement-focussed stores do not have such qualified person because their store size is too small to add headcount at every store. NHC drive significant amount of long-term sales.

But if you had invested in the business in 2014, the net share price CAGR would be a staggering 2.9% excluding dividends. Partly this might be because they are hanging around in the microcap/smallcap land and continues to remain largely undiscovered. NGVC is also a largely family owned business with 43% owned by insiders. Less than 10M shares trades as free-float. Despite being $695M in market-cap, hardly $3-4M gets traded each day. The stock trades at 13 times PE and 33 times free cash-flow multiple. While this does not scream cheap, the business barely has the limelight it deserves. Perhaps it has partly to do with negative press that supplements typically get, with Pyramid MLM schemes. But the ones willing to look past that, will see the business has improving returns of capital. As the business scales, they are able to expand gross margins which in turn is increasing their ROIC to high 20%.

This might not be the 10-bagger in a single year but if the execution remains same as they scale, this business can run for a very long time. The footprint is still small, the population is generally much more health-conscious than they were a decade ago. With 4-6% store count growth, 6-7% same-store sales growth, this should easily grow topline by 10-13% in the longer term. 13 times PE for a 10% grower could be quite a steal.

Last October I found one with the trifecta - Growth, Good Management and Cheap Valuation.

This is the story of one of the fastest growing airports, run by a fantastic management and trading at EV/EBITDA of 12 (median EV/EBITDA for airports is almost 25)

The bargain exists because of 3 reasons:

1. It is an Indian airport

2. It is under a mid-cap holding company listed in Toronto

3. There is only 1 analyst covering it

Today, it has a 4 month catalyst to re-rate.

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Since I pitched DaVita in Unfair Advantage in March, it is up 42% after crushing their quarterly earnings. Crocs is up a 21% but I think this has a lot more room to keep going. JD is up a 13% and Pandora is up 12%. I don’t believe these are picks that are undiscovered in the truest sense. Often market does not value the power of their business models and in that process underestimate how well these businesses can perform.

I started going through 2,200 US small cap stocks in April to hunt for bargains, special situations and compounders. Finally this exercise is over. Over the next few weeks, I will share the entire list. I found around 70 that seem interesting but the goal is to eventually find 4-5 names for deep-dives and make them core positions in the portfolio. It has been a while since I wrote to you since my focus has been sifting through these stocks. The deep-dives are paused for now and instead I am prioritising idea-generation by going through as many small-caps as I can.

Welcome to the wonderful world smallcap SaaS

The land of SaaS has become bloodied. The land of smallcap has been ignored. Ergo the land of smallcap SaaS is bloodied and ignored. What better place to look for bargains then that everyone either avoids or ignores? Granted most of smallcap SaaS is sh*t and rightfully deserves to taken behind the barn and buried. But some of the good ones get thrown out of the bathwater too. I found 8 of them that look very interesting. With some cocky arrogance, I will claim that I didn’t find any Substack or X covering these.

Liquidity Services Inc ($LQDT)

Liquidity Services operates the primary marketplace for surplus goods—government assets, liquidation inventory from retailers like Amazon and Walmart, foreclosures, equipment. The sellers want speed and best returns. LQDT connects them with 6M registered buyers. In FY25, they moved $1.6B in GMV.

Three segments drive the business. GovDeals sells government surplus from laptops to more complicated ones like foreclosure real estate. This is nearly 50% of GMV, up from a $180M quarterly run rate in 2023 to $250M now. Retail Supply Chain Group handles corporate liquidation inventory (29% of GMV) up from $70M to $100M (50% growth). Capital Assets Group rounds out the portfolio at 17% of GMV helping resell heavy assets like tractors, cranes etc.

This is a network business in a neglected corner of the supply chain. With more buyer and seller liquidity, the flywheel tightens. LQDT is becoming the de facto place to trade surplus. It resembles Copart. Once it’s embedded in that role, dislodging it becomes expensive.

LQDT trades at a $1B market cap with $200M net cash on the balance sheet. On an EV/TTM FCF basis, that’s 15x (adjusting out stock-based comp to reflect true cash generation). Over five years, they’ve grown GMV at 20% CAGR while maintaining 8–10% EBIT margins. Much of the cost structure funds growth reinvestment, so normalized run-rate profitability is materially higher. Share buybacks have offset option issuance, leaving share count effectively flat.

Mitek Systems ($MITK)

Mitek is a $700M company in fraud detection and document verification. Half the business is in fraud detection and other half is Check Verification. Mitek customers are among the most blue chip ones like Chase, Morgan Stanley, Mastercard and Royal Bank of Scotland.

The stock price hit an all time low $7 per share in Feb 2026 and since then has gone up to $16 per share. Even at these levels, the stock is trading 12 times TTM cash flow for a company that has long term 7% growth with a sticky customer base. The part most miss is half their revenue still comes from legacy software sales which follows the typical renewal cycle. Other half has migrated to high margin SaaS revenue. At first brush, Mitek looks like a legacy company trying to reinvent itself and even might face revenue pressures in near term as the one-time renewal revenue gets replaced by sticky recurring SaaS revenue. SaaS grew 15% last quarter while legacy software revenue contracted by 3%.

The rise of AI and ease of creating fake identities is a tailwind that Mitek is riding. In the last quarterly call, they raised their guidance as there is a lot more customer interest in reliable fraud detection algorithms. To date, Mitek has primarily focused on financial services but I think recently they are starting to see a lot of traction from governments as well. They mentioned that they are in talks with UK government as well and this could easily expand their TAM more.

The company has $20M net cash, trades at 12 times free cash flow because a big part of its SaaS growth is being masked by the decline in legacy software sales (which is actually migration of revenue to SaaS).

OptimizeRx ($OPRX)

Perfect cocktail to be hated - Healthcare + Smallcap + SaaS

OptimizeRx is a healthcare marketing company that helps Pharmaceutical brands connect to over 2M Healthcare professionals and patients. They have 2 core products - Dynamic Audience Activation Platform (DAAP) and Micro Neighbourhood Targeting (MNT). DAAP allows pharma brands to reach out to both healthcare professionals and eligible patients and MNT helps pharma brands target geographies with eligible patients through de-identified data. A big challenge for pharma brands in using highly targeted marketing campaigns is privacy guardrails in healthcare data. Unlike selling a shoe or a phone, pharma cos are practically running blind which is where OptimizeRx becomes critical. They are regulatory-compliant service that works with almost all of the biggest pharma brands. Their net-revenue retention ratio is up 100%+ which means, the same customers spend more this year with them compared to last year.

OptimizeRx has scaled quite well and management explicitly has stated one of their aims is to be in the rule of 40 club (revenue growth + EBITDA margin > 40%). They are almost there. Over the last 3 years, revenue has grown at 20% CAGR while EBITDA margin in last 12 months is around 18%.

The company is quite small. Their market cap is $93M (EV is $96M - not too much debt either) and recently issued a $10M buyback. The company share price is around $5 right now down from 2021 bull market prices of $100 per share.

They did around $9M in average free cash-flow over last 2 years, excluding their share based compensation. This puts OptimizeRx at around 10 times free cash-flow on average with still plenty of growth ahead. They have $20M in cash on their balance sheet should they want to acquire.

A company that trades 10 times adjusted FCF, 0.97 times revenue and still growing 20% per annum feels like a bargain. They are also capitalizing on buybacks now that their debt has been completely paid off. My thinking here is that the sentiment will eventually shift. Insider buying is not heavy yet but that is another signal I am watching out for. Their customers are pharma cos who themselves have a flippant mood when it comes to marketing budgets. Pharma Industry spends close to $20B in digital advertising right now. Most of those are generic advertisements that are not targeted. OptimizeRx has the opportunity to become the middle-man here, clipping coupons and gate-keep their reach to HCPs and patients if they continue executing.

Onespan Inc ($OSPN)

Inflecting Margins → Moving from Hardware to high-margin Software

On the surface, Onespan would make you yawn. Cybersecurity and Digital Agreements. A $480M marketcap company that has around $50M in net cash, 28% LTM return on equity, 20% EBIT margin and have 60 of the top 100 banks as their customers.

Onespan did not start out to be a cybersecurity firm. Their original business was in hardware - selling authenticating devices that allows employees access to computer systems. Before mobile authenticator was a thing, people used to hang around with a small device that would display a code every 30s. They had to put in the code into their computer to access the bank software. Onespan used to sell this device which was 75% of their revenues in 2015. Fast forward now, hardware is only 25% of their sales declining but their customers have stayed. If we know anything about banks, it is they are sticky customers. Onespan sells software that does the same authentication. 70% of their business is in cybersecurity which has 43% operating margins. 30% of their revenues are from digital agreements (think e-sign) which has 27% operating margins. The biggest advantage they have is the ready customer base of mostly blue-chip banks and financial services companies. There has been decent insider buying except the CFO seems to be selling all the shares that vest. It is not exactly a bearish signal but it is not bullish either.

Pager Duty ($PD)

PagerDuty is an incident management platform that is expanding now into AIOps and Automation. This is a classic case of a baby thrown out of the bathwater. The company has $56M in net cash and trades at 6 times free cash-flow with a $550M market cap. The company has scaled revenues from $79M in 2016 to almost $500M in 2025. They did a few acquisitions along the way but managed to quickly repay the debt. PagerDuty just authorized a $150M buyback plan too.

With AI coming in a big way, I think there is a good runway for AIOps if PagerDuty can crack it. Of course this would mean competing with Service Now. They claim 70% of Fortune 500 companies are their customers including big ones like Spotify, Twilio. The forte is still incident management which is where the name comes from - Pager Duty which is a call back to those times when on-call engineers needed to be paged should the system go down or face any issues.

Right now, there is no insider buying that gives a strong signal. But with a strong balance sheet, and a cheap valuation there is good upside if the company makes headway into AIOps. Even looking into my day-job, it looks like we might need something to manage all the different AI workflows people are spinning every other day.

Phreesia ($PHR)

Every time I come across a smallcap SaaS, I learn something new. Phreesia builds SaaS applications for patient intake, appointment scheduling, payment processing and their biggest customers are healthcare organizations. Despite being a smallcap, Phreesia processes 14% of US patients, 170M patients across 4300+ healthcare organizations. The stock is the cheapest it has been. From 2022- 2026, the stock was range bound, trading between $17-$38 per share but in SaaSpocalypse, the price got butchered down to $8 per share.

The company is free cash flow positive only over the last 3 years mainly from cutting down SG&A costs after bloating it since 2023. Revenue has grown over those 3 years in spite of SG&A coming down which is a good sign that the company is not sacrificing growth for profitability. In 2025, Phreesia acquired AccessOne for $150M in cash and entering the receivables financing market. This put around $70M debt on their books and remaining they were able to fund through internal accruals and cash. Right now, Phreesia has $30M in net debt (adjusting for cash) against a company that makes $80M in cash-flows in a year. That shouldn’t concern anyone per se. 15% of the company is now owned a private equity player, Pale Fire Capital and they seem to be buying more. They just bought 1.2M shares at $8.2 per share. This company would be the perfect take-private candidate, preferrably at a premium.

On a FCF basis, this company looks very cheap. TTM FCF is around $110M against a $550M market cap. But the issue is the share based compensation which was around $93M last year. Granted some of this was for the new employees in the acquisition but they are a bit more ESOP friendly than other names here. Adjusting for SBC, it does not look very cheap but there is untapped value here. 4300 healthcare customers and handling 14% of US patient population is almost a somewhat-big-to-fail company.

And now for 2 high conviction picks - One is a company that possess in-depth data on 90% of US housing market. Second is an Indian company that owns and is building data-centres in India and owns 110,000 kms of network.

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Last week as part of this exercise, I had shared 2 hidden gems - One which is going through a business transformation from an agri company to real-estate developer. From their conservative estimates, they will earn their market cap in 5 years. Another one is a spin-off trading at 6 times FCF and likely to grow at 15%.

As always, I am keeping some free for all and some for just the paid subscribers. That way, there is something for everyone. Behind the paywall are 3 names which I am excited about. One has an unique business model that is hard to replicate, A restaurant chain with rational capital allocation and the other that I think will continue growing for decades to come.

If you would like to access this and all the previous write ups, join the gang. One third of Unfair Advantage paid subscribers are institutional investors.

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Bloomin’ Brands (Style: Earnings Inflection)

• MCap: $544M

• EV: $2510M

• 5.6 times TTM FCF

Bloomin’ Brands, Inc. was founded in 1988 and is based in Tampa, Florida. Bloomin' Brands, Inc. owns and operates fine dining restaurants mainly in US. Its restaurant portfolio has four concepts, including Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse.

Restaurants are hard businesses. Where do I even start - competition is unusually high, costs are fixed, labour management is a headache (especially with constant attrition). And as if all this was not enough, Bloomin’ is leveraged. The reason I like Bloomin’ is for two reasons - It is very cheap and when macro picks up, consumers are going to eat out more which will naturally lift earnings. A billion plus change of the $2B in net-debt is capital leases. While they are technically still debt, it is not restrictive like a term-loan. Bloomin’ brands has 1460 restaurants across 12 countries. So clearly they have something that works. Footfall has finally started to pick up in Q4 2025, after 4 quarters of declining traffic as well.

Verdict: Bloomin’ Brands is a classic leveraged company going through a downturn. It will not take a lot for earnings to flip if growth comes back. Case of a stock with very high torque and significant upside when traffic improves

Byrna Technologies (Style: Growth)

• MCap: $138M

• EV: $131M

This is an exception on the list. Byrna is a growing microcap unlike the previous examples. They make less-than lethal self-defence weapons. These are basically guns that shoot pellets instead of bullets. Byrna has an interesting new model where they sell these guns and the pellets too - A classic razor and blade model. Over the last 10 years, there models have become quite popular with both individuals and government agencies. A quick look at the revenues will tell all you need to know.

Byrna is still early in their life-cycle and just turned GAAP profitable 2 years back. They made $8.8M in net-income last year but I think this can significantly go up because they are spending quite a bit on SG&A. (50% of revenue) As they scale, SG&A will not scale this much, while their gross profit is in high 60%s.

Verdict: Byrna’s products are getting the visibility they deserve. From here, there are either going to scale or become a takeover candidate themselves. Either way, the entry-point for valuation looks attractive.

Cross-Country Healthcare Inc. (Style: Earnings Inflection)

• MCap: $320M

• EV: $214M

• 8 times TTM FCF

Cross Country Healthcare, Inc. provides talent management services for healthcare clients in the United States. The company operates in two segments: Nurse and Allied Staffing, and Physician Staffing. CCH was founded in 1986 in Florida. This is also another case of a good company in a depressed environment. Healthcare has been one of the slowest to move in the last 5 years and the talent resources for healthcare has become scarce (in part to immigration laws, pandemic) that they have become quite expensive. CCH is now in a double whammy both at revenue and cost level.

In 2025, they terminated a merger agreement with Aya healthcare. This merger valued CCH at $615M, almost double of current market cap. Currently they are $300M with almost a $100M sitting in cash and the board has immediately decided to buyback shares.

Verdict: CCH is cheap. It is an asset-light business that will naturally get better as the industry sentiment improves. The board seems to be doing the right thing buying back as many shares as they could while the balance sheet has firepower to do even more buybacks.

Clarus Corporation (Style: Deep Value)

• MCap: $103M

• EV: $78M

• NCAV: $120M (Current Assets - Total Liabilities)

First net-net profiled in this series! Clarus makes outdoor gear suitable for camping, hunting like footwear, carabiners, harnesses etc. They are an old company, founded in 1957 in Utah. Changed their name in 2017 from Black Diamond to Clarus. Currently they do not have any debt with a net cash of $25M. Clarus’ ten year history looks okay and would probably get a solid C grade here. Revenues have grown from $145M to $250M over 10 years. This was followed by a few small equity issuances here and there, Clarus never had to bet the house and leverage themselves at any point.

Verdict: From my vantage point, it looks like when macro improves, Clarus improves. There is no particular special sauce to the business. When interest rates come down in future, consumer confidence will pick up, and Clarus should be able to have its moment.

Clearfield Inc. (Style: Growth)

• MCap: $420M

• EV: $332M

• 21 times TTM FCF

Clearfield is a Minnesota company founded in 1979 that makes communication equipment. Think fibre connectivity devices, cabinets etc. that are used in broadband connectivity. Their core market is selling to ISPs in rural-broadband space but management keeps referring to data-centre end-market coming up that makes me think perhaps they would become an AI beneficiary soon and is waiting to be discovered. Clearfield sells cabinets, fibre frames, racks to data-centres. Right now, the money-maker is rural broadband but in the future, it is entirely possible that data-centres become a big market.

Verdict: Clearfield falls squarely on the line between investing and speculating. The old-me would’ve scoffed but I think this can be a small position now and see how it develops. Core rural broadband is a good market to go towards and data-centre would be the call option on it.

Commercial Vehicle Group Inc. (Style: Deep Value)

• MCap: $147M

• EV: $258M

• 4 times TTM FCF

Commercial Vehicle Group (CVGI) makes seats, electrical assemblies, plastic trims, harnesses for heavy-duty trucks, agricultural vehicles. A supplier to automotive industry, they naturally cyclical. I would take the FCF multiple with a grain of salt if I were you. But that is not why I am recommending CVGI. In 10 years, they never made a loss. The operating margins went as low as 0.6% but never negative. Barring a debt raise during pandemic, CVGI has consistently paid down its debt for 10 years, never issued equity either. That strikes me as a well run business in a highly cyclical environment. So far, during up-cycles, CVGI tries to repay as much of the debt as possible. Revenues have been exceptionally stable as the company has been laser focussed on getting leverage levels down. Now, I don’t think their leverage levels are worrisome.

Verdict: CVGI seems to be an interesting company that is run exceptionally well in a cyclical industry like automotive suppliers. Operating Margins are at their lowest currently and with re-shoring of manufacturing, interest rate cuts, CVGI can pretty soon have some strong tailwinds behind them.

Double Down Interactive (Style: Deep Value)

• MCap: $435M

• EV: -$15M

• Trading below net-cash

DDI is a South Korean games developer. They mainly make mobile and internet games for Casinos. They have been consistently profitable, choosing to load up cash on their balance sheet. Right now they are trading below net cash while the company does not even bleed money. I do not understand how these games even make money but this is dirt-cheap.

Verdict: This is a deep-value pick where you buy it at $8 bucks a share, and flip it for an easy double. Beyond that you and me would need some expert insights into game development for Casinos. Limited Downside with a solid 100% upside

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That gap is what I am interested in.

I've started a new Substack called One Business a Week. Every week, I write about one business. I cover how they make money, what keeps competitors out, how they take market share, where the management is taking the company to. It is not a regurgitation of financial numbers that makes you more familiar with the business but does not give you a deeper understanding.

The companies covered here will be typically bigger than what I cover in Unfair Advantage Capital (mid to large caps).

This isn’t only for investors. It’s for executives, founders, students, and anyone who finds themselves genuinely curious about how businesses work. If studying a business for its own sake is something you enjoy, this is for you.

Go subscribe. And if you know someone who thinks this way, send it to them.

Here are some businesses covered:

I have finished As and Bs and going through Cs. In this article, I will cover 2 of my high conviction picks and a shortlist of 10 stocks that look promising. The total universe of US small caps ($100M-$1000M) is 2,200 stocks, out of which I have looked around 400 so far. Over next couple of weeks, I will cover this and then move to a similar exercise for US midcaps.

So how do I go through these stocks?

The filters I use are very simple. In a classic Munger way, I invert the problem and look for conditions to reject a company. The ones that are not rejected, end up in my shortlist.

1. First level of filtering:

   1. Companies not in my circle of competence - Banks, Insurance, Crypto, Bitcoin miners etc.

   2. Companies that are not earning any revenue - Development companies, new-age companies that are public before earning revenue

2. Second level of filtering:

   1. Companies in industry where there is no guarantee of sustained demand growth - Junior gold miners etc. are great examples of this

   2. Companies with history of loss, cash-burn

3. Third level of filtering:

   1. Companies with history of diluting shareholders or highly leveraged

   2. Companies that do not add any positive value to society - Gambling, Guns, Ammunition

There are 10 stocks I found interesting. But 2 stocks look extremely interesting that I am buying and even want to make larger position. The high conviction ones are behind the paywall.

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The issue is not everyone has the time to undertake this exercise.

That’s where I come in.

Over the last 3 years, going A to Z on stock exchanges is one of my favourite methods for sourcing ideas. It is simple, exhaustive but on the flip side, it takes time.

My first was Canadian stocks on OTC exchange. There were almost 2400 stocks.

Through this I found Leon’s furniture. A 110 year old family owned furniture retailer which has $1.2-1.5B worth of highly coveted real estate (sitting in historical cost in balance sheet), $450M+ in cash and a high quality management running the business.

Needless to say Leon’s is now my second largest holding. And still not more than 3 substacks cover it! An undiscovered mid-cap indeed.

Then I went through around 3000 stocks in US OTC Market this time. Wrote up a few. Did a scan of Netherlands Stock exchange as well. That was quicker since they don’t have a lot of stocks

Now I am doing what I should have started with - A-Z scan of US stock market. I plan to do this in 2 stages:

1. Small caps - $100M - $1,000M market cap

2. Mid caps - $1,000M - $25,000M market cap

My best estimate is this should take a few weeks and you can expect to see a lot of names being covered here with a few deep-dives. Stay tuned. I will keep a 80-20 split between paywalled and free. 80% will be behind a paywall, and 20% will be free. That way there is something for everyone.

Stay Tuned!

AK

Everyone is believing these elevated oil prices are temporary. After all it is Pavlovian isn’t it? In the last 2 weeks, every time we read headlines about the conflict, it was also followed by oil price increasing. Ergo, if conflict ends - prices should drop?

No. And that is where everyone is wrong.

In this article, I will cover what is variant perception on Oil, current supply shock due to closure of Hormuz and an update on oil stocks that I own and wrote about here.

To summarize current thinking, it goes something like this:

Currently Strait of Hormuz has halted 20 mb/day, which is around 20% of world’s oil needs per day. To understand the criticality, we have to look at the map.

Hormuz is the narrow channel through which 20% of global oil supply moves. Every. Single. Day.

All the blue dots in the map are oil installations. And if this is closed, it is not as simple as just shipping it out of Red Sea. Because the oil supply chain is a complex one. From upstream production, oil is pumped through pipe-lines, stored in massive tanks at port, filled into ships and then shipped. Pipelines and tanks cannot be shifted or rebuilt at the drop of a hat. As per International Energy Agency (IEA), currently roughly 8% of ship-storage is stranded in middle-east gulf.

The latest reports we have is from 12th March 2026 by IEA.

1. By 10 March at least 10 mb/d of crude and condensate production was estimated to have been curtailed

2. Iraq announced on 2 March it had to reduce output at its Rumaila, West Qurna 2 and Maysan fields due to lack of storage or evacuation options. Operations in northern parts of the country were also halted following missile and drone attacks.

3. QatarEnergy shuttered LNG liquefaction facilities in Ras Laffan on 2 March and downstream products on 3 March following drone strikes, effectively curbing condensate and NGL output by 1.1 mb/d. With no export options to bypass the Strait, Kuwait started reducing production on 6 March to slow the fill of its storage tanks

4. Bahrain scaled back production after a drone strike on its Sitra refinery. Offshore fields in the region with limited access to storage or oil egress have also been forced to curtail or halt production

5. The UAE announced on 7 March it is cutting output at its offshore fields that combined exported over 1.8 mb/d of crude oil in 2025

From 28th Feb to 12th March, 2026, IEA estimates the gross reduction in oil production from the conflict was around 8-9 mb/day (8% of the supply). Even after re-directing some of the production via the Yanbu pipeline (red line in the map), the net reduction was close to 7-8 mb/day. The global inventory of oil we have currently is 8210 mb. If this shortage persisted for 10 days, we would be consuming 10% of global inventory.

In response, IEA member countries decided to release 400 mb of strategic oil inventory. In their base case this inventory would offset production-decrease by 47 days. The base-case assumption ‘back then’ was that conflict would end by late-march and supply would normalize. If that had happened, it would have taken two months for supply to resume to normal by June. 3 months and perhaps oil would be back to $60-70 per bbl.

But that didn’t happen. Conflict rages on.

That means we are consuming the oil inventory at a much faster rate. Production shortfall is now estimated to be closer to 10 mb/day (vs 7-8 mb/day). The 400 mb release will be completed much sooner than we think. Rough napkin math would be since 12th March to now (22 days), if we drew 7-8 mb/day from inventory, then we would have already consumed 150-160 mb (22 days x 7-8 mb/day) of the 400mb released. Which means we have another 240-250 mb left which would last us at best another month.

The next IEA report is not due for another 9 days (12th April). Perhaps the world will wake up to another rude shock when the numbers are compiled. Assuming the conflict continues, which it appears it will, the case for oil above a $100/bbl remains high. Increased supply from American shale and Canadian oil-sands is not close to compensating the shortfall.

Supply normalization won’t be quick either

This is the second part of the Pavlovian response I spoke about. We are already assuming that if conflict stops, the oil prices normalizes. Which is perhaps why the stocks haven’t moved as much as the oil prices have.

However, this is not the case. The conditions that the conflict has created will take time to be undone.

Starting with the obvious - Infrastructure damage. Oil refineries have been targeted and blown. Not to mention what the next couple of days look like.

Maritime Insurance premiums are up. War risk premiums are up almost 500%. War Risk premiums have gone up from 0.2% of vessel value to 1% of vessel value. IEA puts it bluntly

Without private insurance, government-backed insurance (which the US has announced but not yet implemented) would be needed. Restoring commercial insurance coverage requires a sustained period of calm, not just a ceasefire announcement.

Labour crunch - Simply, who wants to even work there? On 5 March, the International Transport Workers' Federation (ITF) upgraded the region to a Warlike Operations Area (WOA). This triggers double basic wages and, critically, the right of seafarers to refuse to sail into the area. Even with a ceasefire, ship operators must negotiate crew willingness to transit. This is not a contractual formality; it is a genuine constraint on vessel availability

Finally production restart takes time. Shut-in production cannot be instantly restarted. The IEA explicitly warns that 'ramping well production up or down too quickly can damage reservoirs or well equipment.' Restart timelines vary by field complexity: onshore conventional fields may restart in days to weeks; complex offshore fields could take weeks to months. Several IOCs and service companies have evacuated staff from the region. Workover equipment will need to be sourced and moved back. Qatar has stated it will only commence its 'lengthy restart' of production from shut-in LNG/condensate facilities after a complete ceasefire

At the end of the day, I think deep down everyone wants the conflict to be over soon. While that is the right thing to hope for, everyone seems to be pricing it the same way. Oil stocks are priced as if $100/bbl price won’t last longer than a few days. But it has been above $100 since March 29th for last 6 days. Going by current tightness, it looks like that will be the case for few more. Even keeping aside the magical $100 milestone, oil has been above $90 per bbl since March 11. Almost an entire month.

Oil stocks at Unfair Advantage

I have been long oil when it was not a favoured sector. In 2024, I wrote about and why Berkshire bought it. Since then, Oxy has returned 12% (including dividends) and I expect this to continue for decades to come. In my pitch, I wrote Oxy to do around 15% per annum (dividends + buybacks). Oxy has given around 1-2% in dividends and ploughed back around 9-10% into buybacks. This was when Oil was trading around $60-70 per bbl and sometimes even touching $50.

There was two parts to Oxy thesis. One in the valuation - a 11-12% yield when oil is around $60-70 per bbl and one in the business model itself (Oxy’s enhanced oil recovery).

In 2025, I had pitched off-shore drillers. My favourites were Valaris and Seadrill. Valaris is acquired by Transocean and is up more than 100% since writing it up here. Seadrill is up 14%. This was bit off-brand because I like misunderstood businesses with interesting business models. Offshore wasn’t one such industry. Nevertheless, the market felt tight and there was money to be made. I have also covered 2 more oil stocks in 2026. One is up 22% since January. The other is a net-net that remains undiscovered in OTC land. They were a net-net when Oil was $70 per bbl.

All in, I think there is still time to add into Oil. If you are already there, it wouldn’t be a bad idea to add some more despite the run up. The situation could be evolving on a daily basis but there would be at least 2-3 months of tightness after the conflict ends. Not to mention all the downstream effects of an expensive oil barrel.

[If you are new here, welcome! This is a deep-dive for paid subscribers. You can access the entire article and more for $9.99 per month or $99.99 per year.]

In part-1 , I covered:

1. Dialysis Market Overview

2. Unit Economics of a dialysis centre

3. What drives their ROCE? (Paywalled)

In part-2, I covered (Paywalled):

1. Understanding the market, business

2. Future outlook - GLP-1, Aging population

3. DaVita - Capital Structure and Allocation

4. On Berkshire selling their stake

In part-3, I will cover (Paywalled):

1. Integrated Kidney Care - Value Based Care

2. Final Investment Thesis

Value Based Care - Patient care through incentives and economics

The DaVita and Fresenius model we have seen so far is simple.

More Patients → More Dialysis sessions → Revenue + Economies of scale

If we look at the broader system, it is the same. Nephrologists gets paid for more appointments. Hospitals get paid for more admissions.

So no one is really incentivized to control costs or looking at the patient care comprehensively. The biggest cost is when ESRD patients get admitted in the hospital.

Value Based Care (VBC) flips this model.

With VBC, stakeholders are rewarded for keeping costs low. It is essentially ‘Here's a budget that we would have spent on these patients under the old system. You coordinate their care. If you spend less than the budget, you share in the savings. If you spend more, you share in the losses’.

Say the budget for a patient is determined to be $100. At the end of the year, if DaVita spends only $95 on providing care to the patient, then they get to keep part or all of the $5 savings. If they spend $102, then they have to pay $2 out of their pocket.

Value Based Care - Who are the players, the risk models?

VBC is managed by Centre for Medicare and Medicaid Services - CMS for short. The first step in this direction was the Comprehensive ESRD Care Model (CEC). In the CEC Model, dialysis clinics, nephrologists and other providers joined together to create a coordinated care for patients. The model encourages dialysis providers to think beyond their traditional roles in care delivery and support them as they provided patient-centred care that addressed patient health needs, both in and outside of the dialysis clinic.

Kidney Care Choices Model (building up on CEC model)

The Kidney Care Choices (KCC) Model has similar aims to CEC model, which is to delay the onset of dialysis and incentivize kidney transplantation for people with Medicare who have chronic kidney disease (CKD) stages 4 and 5 and end-stage renal disease (ESRD). The voluntary model launched in 2022 and will run through 2027.

In-center hemodialysis is the most common type of dialysis, and more than 430,000 Medicare Fee-for-Service patients with ERSD spend an average of 12 hours a week receiving in-center hemodialysis. There are 3 options for players like DaVita and Fresenius:

• CKCC Graduated Option (Starts one-sided, escalates to 2-sided) : This payment arrangement is based on the CEC Model One-Sided Risk, allowing participants to begin under a lower-reward one-sided model and incrementally phase in to greater risk and greater potential reward.

• CKCC Professional Option (Partial risk - 50% of upside, 50% of downside): This payment arrangement is based on the Professional option of the Global and Professional Direct Contracting Model with an opportunity to earn 50% of shared savings or be liable for 50% of shared losses. In our example above, DaVita would earn $2.5 (50% of $5 savings) or lose $1 (50% of $2 loss)

• CKCC Global Option (100% upside, 100% downside): This payment arrangement is where the player captures all of the upside but are also liable for 100% downside. In our example above, DaVita can either earn all the $5 or lose all $2

Now there are few more details like benchmark discounts, retrospective trend adjustments, Capitated payments etc. I will not go into them now because those are not relevant. The core of Value Based Care model essentially hinges on 3 core factors:

1. How much risk is assumed - Going for CKCC Professional (50% risk) or CKCC Global (100% risk) model

2. How is the cost benchmarked - If the benchmarked cost is $90 vs $100, it becomes that much harder to save costs

3. How to drive savings - Essentially how does DaVita or Fresenius end up saving these costs

How does DaVita and Fresenius differ in their approach to Value Based Care?

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Today you can buy their biggest e-retailer for a $1 which has 56 cents net cash in their bank. You would be paying 44 cents for 21 cents of earnings this year.

That is buying the company at 2x earnings.

Let us check few basic facts about this company before we go further

1. Is the company growing? Yes, this company grew revenues at 17% CAGR,

2. Does this company have debt? No, the company has $21B net cash (vs $37B market cap)

3. Does this company have a dominant position? It is the largest e-retailer in China by revenue and dominant in electronics and home appliances category specifically.

The company is JD.com and I have it in my portfolio.

JD.com = Good business + Good management + Fantastic Valuation

JD.com is different from their competitors like Alibaba and closer in structure to Amazon. Over the last decade, JD has invested large amounts in setting up their own distribution infrastructure, purchases inventory and delivers it through their own logistics network. JD has 3 segments - JD Retail (core China e-commerce), JD Logistics (supply chain arm) and New Business (Food delivery, Overseas etc.).

JD Logistics is arguably the company’s most strategic asset. As of 2025, JD Logistics manages over 3600 warehouses with total area around 34 million square meters, 19,000 delivery stations and service outlets. They even own 9 self operated cargo aircraft through JD Airlines. This allows them to have 95% of their first-part orders to be delivered within 24 hours in China. JD is now monetizing their logistics assets by services to external clients. With this strong logistics network, JD boasts of 6% return rate compared to industrial average of 12%.

Over the last 8-10 years, 3PL component of JD’s business has been accelerating as well, reaching as high as 60% of their GMV in 2024 vs 32% in 2017. In 3PL business, JD does not purchase and own their inventory but rather act as a portal to ‘pass-through’ the merchant sale. This asset-heavy nature of JD has all sorts of consequences. Operating margins are razor thin at 3.3%, while Alibaba is closer to 12-15% and PDD is higher at 28%+. The key categories where JD wins are high-ticket ones like electronics, appliances which need more trust with the merchant.

To date, JD has been aggressively pouring their earnings back into business. Over the last 5 years, they spent close to RMB 280 billion in cumulative apex with trajectory sharply accelerating from RMB 20.5B in 2019 to RMB 59B in 2023. 60-65% of this capex went into logistics and warehouse infrastructure. JD logistics expanded from 750 owned warehouses in 2019 to 1600+ self-operated warehouses by 2024. International expansion added 130+ overseas warehouses across 23 countries.

JD breaks their revenue into products and services. Products include all their e-retail, physical retail sales. Services include logistics, marketing and advertising.

JD’s dominance in Electronics and Home Appliances is the moat

Not all e-commerce purchases are the same. As the purchase price increases, we become more discerning about what we are buying, where we are buying it from. Electronics and Home Appliances fall under what I call - High Ticket Purchases. Customers want to buy expensive items like this from a place they trust, at a reasonable price, which will come to them quick. JD ticks all those boxes because they have the supply-chain infrastructure to support it. The 6% return rate is the crucial component here because it signals two things. One, the company has an efficient supply-chain network that can deliver goods correctly 94% of the time while industry can do it only at 88% of the time. The first order effect is the cost-efficiency as returns are expensive. The second order effects are the customer good will it has built up from delivering goods at a competitive price, quickly and accurately. This will be harder to displace. For bulky items like appliances, JD's logistics network handles installation, returns, and after-sales service end-to-end. JD couriers wear uniforms, warehouses run on JD's own smart systems, and JD handles returns, installations, and after-sales service for its self-operated products.

Why is the stock so cheap?

In the recent past, JD management has been under fire for a lot of their decisions that has been burning up earnings. JD has heavily invested in quick delivery by integrating Dada (their food delivery business). To date this venture has been making losses. In addition, JD is trying to enter Europe (again) which is adding cost to the business. All of this has depressed earnings in the last 1 year.

However the core JD Retail engine hums along. Their growth bets are eating up the profits. JD’s next leg of growth is expected to come from quick-delivery, a hotly contested space in China currently and international business (JD’s expansion into Europe).

The management faces the dilemma. On one hand, there is a huge pressure to keep growing vs retaining existing profitability. So question is where do you invest in growth and how quickly can you win in those bets. JD believes the answer to both those questions are quick delivery.

GabGrowth and Zack Zhu put it succinctly why JD is targeting the quick service market

JD was the first to escalate the conflict, formally kicking off the latest phase of competition in February 2025. Alibaba followed roughly three months later, announcing an initial RMB 50 billion (~USD $7 billion) investment into quick commerce. This raises an important question: why did JD start the war in the first place?

Why JD Lit the Match

JD is a leading B2C e-commerce platform in China, long recognised for its quick and reliable delivery. However, since Meituan’s aggressive push into quick commerce beginning in 2021, particularly across daily necessities and consumer electronics, JD’s delivery advantage has come under increasing pressure.

Link to full article - [Deep Dive] Alibaba, Meituan and JD’s Quick Commerce War and How Grab and Sea Will React

In the quick-delivery war, the General Merchandise Revenue is under heavy threat which is less than 30% of their revenue. Electronics and Home appliances are relatively more immune to quick delivery but still impacted by the slowing Chinese housing market and unemployment. General Merchandise is agnostic to economic cycles, lower ticket and high frequency purchases. The quick-delivery battle will be fought fiercely here to maintain that top-line growth.

My bet is that the management is reasonably smart to not bet the house on quick-delivery. Either they win quickly or give up and focus on core business. Both these options are favourable to JD investor at current valuation. The risk is when the battle is long drawn, pressuring earnings for longer than expected. Going by the management’s experience, I believe the risk of long-drawn battle is minimal.

A word on the macro

There is a segment of investors who will say the business quality matters and ignore the macro. I certainly am one of them but I find it hard to hold that idea when dealing with something as unpredictable as China. The argument I continue making is that, it is not enough to point out the risks but also ask if you are being compensated sufficiently for it. If the payoff outweighs the risk, then it is a bet worth making. Beyond that there are 2 interesting articles that give good colour to China Macro.

1. As on March 4th 2026, Chinese regulators will now encourage share buybacks and dividends as per a Reuters Report

   

2. Michael Burry’s analysis on Hong Kong Stock Market - If you don’t know Michael Burry, he was one of the few who predicted the 2008 crisis and was played by Christian Bale in the movie - The Big Short

   1. TL:DR; - His point is HangSeng Index (HK Stock market index) is basically flat to negative since 2020 even though the earnings have gone up significantly. HangSeng’s bear market is one of the few crises where companies continue to grow and the price action is negative because of a negative perception

There are a few more risks inherent with investing in China, namely the VIE structure. When you invest in US equities, you are a part owner in the business. But when you invest in China, you are not an owner in the business but rather you enter into a contract with the company that equates to your economical ownership. It is CCP’s way of retaining some level of control everywhere and keep ownership within their borders. For example, you cannot own 50% of a China company and try to get on their board. Due to this VIE structure, there is a certain discount that Chinese equities typically tend to trade at.

When bear markets hit, you can see some oddities like this. It bears repeating - If you buy this company, you are paying $1 for and get 56 cents they actually have in the bank (adjusted for debt), you get the entire business, it’s current earnings, future earnings for 44cents which earned 21 cents on that dollar. This is not an unknown Chinese microcap that makes an aerospace part or semiconductor part that is cyclical either. They are the largest e-commerce player in China. JD.com has a market cap of $37B, cash + securities of $32B and had a depressed $2.8B net income last year.

In part-1 , I covered:

1. Dialysis Market Overview

2. Unit Economics of a dialysis centre

3. What drives their ROCE? (Paywalled)

In part-2, I will cover

1. Understanding the market, business

2. Future outlook - GLP-1, Aging population

3. DaVita - Capital Structure and Allocation

4. On Berkshire selling their stake

Earlier I had planned on writing only 2 parts. But now I think this will need a third one. Next week I will cover:

1. Integrated Kidney Care - Value Based Care

2. Final Investment Thesis

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