The Roller Coaster

I miss boring markets. It’s not normal for developed market stock indexes to soar or plunge 4-5% intraday based on one man’s harebrained proclamations. While the market is soaring today, I’m not convinced the crisis is over. We’re always just one headline away. I don’t envy businesses trying to make decisions in this environment. As we all try to make sense of this new tariffying reality (did I just make that up? I want credit if politicians and media figures start using this) I thought I would share a few thoughts on things I am seeing in the market, and a few securities worth a look.

When “Being Your Own Bank” Goes Bad

I have never come around on cryptocurrencies. One of the arguments for crypto that makes the least sense to me is the idea that users can “be their own bank.” I get that banks can be annoying, with fees and waiting periods and restrictions on payments that live in the gray area of legality, if you’re into that kind of thing. I don’t like getting pitched on CDs and financial planning when I walk in to do a wire transfer, either. But the safety and security banks provide is more than worth the occasional hassle. I like knowing that if I mess up a financial transaction somehow, there’s a reasonable chance it can be caught and corrected. Not so with crypto! I make a hobby of monitoring the SEC filings and press releases of a variety of uninvestable, OTC-traded cannabis companies. These companies, being mostly scams themselves, have an extraordinary ability to fall for scams perpetrated by others. So it was no shock to me when I read this filing. https://www.sec.gov/ix?doc=/Archives/edgar/data/0001391135/000109690625000425/lsfp-20250401.htm

The company invested $350,000 of its cash into a stablecoin, likely to facilitate the purchase of a cannabis-related product from a supplier not in the good graces of the US banking system and/or government. And the entire balance was promptly stolen. The company talks about cooperating with law enforcement to recover its funds, but let’s be real. Never gonna happen. The funds could have been stolen by anyone, but my money (US Dollars, not “USD Coin”) is on an employee.

This seems to happen to some business, somewhere, almost monthly! Running a business is already tough, with plenty of risks to address. I don’t know why a business would choose to add an extra dimension by converting its precious cash to unregulated, difficult-to-safeguard digital alternatives. But I am suppose I am getting old.

There Are Cheap Deposits and There Are CHEAP Deposits

I think about bank deposits as the raw materials that fuel a bank’s lending and investing activities. The less a bank has to pay for its deposits, the better. Deposits have a direct cost component in the interest that banks must pay to induce customers to make and keep deposits with the bank, and an indirect cost component in the marketing and customer service that must be performed for the same reasons. Bank analysts focus on “net interest margin,” the spread between a bank’s interest income less its interest expense, divided by earning assets employed. Maximizing this spread (on a risk-adjusted basis) is every bank’s task, and it is a tricky one! Push too hard on loan pricing, and you risk depressing loan demand or sacrificing credit quality. Push too hard on deposit costs and you risk losing deposits to competing banks.

So anyway, the other day I decided to go looking through OTC banks to see which were paying the least on deposits. In theory, these banks should have a serious competitive advantage against other banks that must pay more. I found quite a few banks that enjoy seriously low-cost deposits. Most are either small business-focused banks that attract a lot of non-interest bearing checking accounts, escrow accounts, etc. Others operate in some strange niche, geographical or otherwise, like a rural area with an older population and little competition, or in a small university town where student groups, faculty unions, and even the university itself keep funds on deposit with local banks. One bank with nearly $120 million in deposits paid an unbelievable $45,000 in interest on those deposits last year! There are people paying more interest than that on their mortgage! (Not me!) As the cost of a liability approaches zero, the economic value of a liability does the same. Can a case be made that a deposit base that is costless is effectively not a liability at all, provided it is highly stable? In that case, the “economic” book value of the bank in question would look wildly different than GAAP tangible book value.

Needless to say, other banks want these low-cost deposits and may find buying them a more effective use of capital than attempting to woo them away. Banks with good quality deposits make great acquisition targets.

All this is to say, I think targeting banks with structurally attractive deposit bases is a pretty attractive niche strategy, and I would love to compare notes with other investors doing the same thing. This is hardly a new idea, but I don’t think it has been applied with any vigor to OTC-traded banks, which are rarely investable for institutional capital. Please reach out if you are doing serious work.

Five Quick Pitches

And I do mean quick! Here are brief summaries of five stocks I think are worth a look in this downturn. Assume my firm owns all five for clients and could buy or sell shares at any time. I am not recommending anyone buy these. Do your own due diligence.

CBL Properties

CBL Properties is a mall owner that restructured and emerged from bankruptcy in 2021. Since, the company has paid off additional debt, sold non-core properties, and returned a lot of cash to shareholders. The company will continue to pursue these three objectives. Shares have tumbled as fears over consumer spending and leverage grow. In my view, shares now trade for the value of CBL’s cash and unencumbered properties, completely ignoring the substantial value in the company’s joint ventures and properties encumbered by the term loan. At year-end, CBL had $9 per share in cash and unencumbered properties that produced $66 million in 2024 net operating income. Valuing these properties at a 15% NOI yield gives another $14 per share in value.

Titan Cement

I am long-term bullish on cement, believing the world is underinvested in raw materials production. Titan Cement is a global producer with operations in Southern and Eastern Europe, Egypt, Turkey, Brazil, and the United States. Shares are traded in Brussels and Athens. After observing the huge gulf in valuations for US cement producers vs. all others, the company wisely chose to IPO its us operations as “Titan America SA,” ticker TTAM. Their timing was good, as there is no way the IPO could go off now. Titan America shares are well off the IPO price and worth a look, but my interest is in the parent company. There are two ways to think about Titan Cement’s value.

1. Valuing TTAM at market value and determining where the European “stub” trades versus peers. By my calculations and including the proceeds that Titan Cement received in connection with the Titan America IPO, the market is valuing Titan’s ex-US operations at around 3.8x EBITDA.

2. Calculating Titan Cement’s enterprise value and EBITDA less the non-owned portion of Titan America. Adjusted for the recent transactions, Titan Cement has an enterprise value of just under €3 billion, or 5.7x 2024 EBITDA. This reads fairly cheap for a cement company with more than half its EBITDA derived from the US part of of the business.

Cement companies will suffer if this trade war continues, but I continue to believe the industry will exhibit long-term pricing power and sustained earnings growth. I think investors could do worse than buying quality cement assets with good management at mid-single digit EBITDA multiples.

Seneca Foods

I started buying Seneca Foods in 2023, when fears over swelling inventory and falling margins lead many investors to steer clear. Perhaps more than any other company in the Alluvial portfolio, Seneca benefits from trade tensions and a weakening consumer. Reduced agricultural imports are supportive of higher veggie prices, and a more precarious economy results in consumers trading down to canned vegetables rather than fresh or frozen. What’s more, Seneca maintains its own can production facilities, cushioning the blow from metals tariffs. Despite these factors, Seneca shares are still down 6% or so this month. The company’s trailing free cash flow yield is extremely robust thanks to working capital release. While this pace of inventory reduction won’t be sustained, Seneca is very well-situated to continue generating free cash flow and returning it via share repurchases. Boring and cash generating are just how I like them.

4Imprint Group Plc

I am looking closely at 4Imprint Group as a very, very good business facing some near-term headwinds. 4Imprint is fundamentally a US business, but it is listed in London. If you have ever gotten a water bottle from a charity 5k race, or a backpack or tote bag with a corporate logo from a company event, there’s a very good chance that 4Imprint provided it. 4Imprint is good at it, and they make a lot of money doing it. Company revenue grew nearly 60% from 2019 to 2024, and operating income nearly tripled. The company is also remarkably capital efficient. Unfortunately, last month the company revealed that orders are down year-to-date on customers’ economic concerns. Shares plunged and are now off 50% from their 2024 highs. Bit of an over-reaction? Could be. 4Imprint shares now change hands for around 8x trailing operating income. The company has net balance sheet cash.

Everyone tread with caution out there, and try not to get swept up in the alternating euphoria and despair. The future is never certain, but history shows that those who keep their heads when emotions run high are far more likely to come out on top. Thanks for reading!

Alluvial Capital Management, LLC may hold shares of any securities mentioned for client accounts it manages. Alluvial Capital Management, LLC may buy or sell these securities at any time. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at info@alluvialcapital.com