April brought another month of uncertainty as the White House started the month with a wide range of tariffs, which created significant downside pressure. During the middle of the month, President Trump began to walk back some of the policy from “Liberation Day,” and the markets rebounded, almost making up for what was lost since the wide-ranging tariff announcements. Like March, it was another negative month for broader domestic equity prices as the S&P 500 and Dow Jones Industrial Average lost -0.76% and -3.17%, respectively. The Nasdaq Composite was different after falling -8.2% in March, the technology-heavy index rose +0.85%. Precious metal gold appreciated 7.76% as President Trump’s uncertain economic policy has caused a further run in the safe haven asset.
The United States’ GDP decreased by -0.3% in the first quarter due to significant front-loading in anticipation of tariffs. We recognize that there will be a lot of chatter in the mass media about the economy shrinking and whether we are in a recession, but know that the net import/export variable in the GDP equation greatly influenced the initial first-quarter GDP reading. This trade imbalance trend is reversing as more tariffs have become effective. Final sales to domestic purchasers, which exclude trade and inventory, performed better, but this demand was also pulled forward, resulting in less potential for growth in the future.
Overall, for financial markets, the news that President Trump would be pivoting away from the harshest tariff rates was a relief to markets. We believe the President’s mid-month meeting with leaders from Walmart and Home Depot led to the President’s shift. The prospects of empty shelves and higher prices were too much of a threat. The strong concern from those companies’ leaders confirms the various surveys we have seen from the heads of business, which paint a bleak picture of the near-term direction of the U.S. economy. As the trade uncertainty goes further into the spring, we expect a deal with China to be announced, but we openly wonder how much trade disruption has already occurred. We know cargoes from China have already slowed dramatically as American businesses put shipments on hold to prevent themselves from paying the high tariff rates. We are closely examining how the tariff-related slowdown could generate opportunities for future investments.
Earnings season has started, and the first quarter figures were broadly good. Guidance for the year, however, was predictably poor. Many companies materially reduced guidance, and some even pulled guidance completely. Comments from executives from a wide range of industries were notably weak. “Relative to where we were three months ago, we probably aren’t feeling as good about the consumer now,” Jamie Caulfield, the chief financial officer of PepsiCo, said. The CEO of Southwest Airlines, Robert Jordan, said, “I don’t care if you call it a recession or not, in this industry, that’s a recession”. Finally, Chipotle CEO Scott Boatwright said, “Saving money because of concerns around the economy was the overwhelming reason consumers were reducing the frequency of restaurant visits.”
Please see the following updates on existing positions held at the firm:
Farmers and Merchants Bancorp (Lodi, CA) (Ticker: FMCB)— The Central Valley, California-based bank had another good quarter. During the first quarter of 2025, the bank grew shareholder equity by 15.65% (annualized) while being well-capitalized with a tangible common equity ratio of 10.4%. Additionally, management increased liquidity by increasing cash and slowing loan growth. We applaud this defensive move but recognize the above-average returns generated despite these decisions. One of the material advantages is that it continues to have a significant deposit base to provide cheap funding. Bank leadership reported that more than 45% of total deposits were of the checking account variety, one of the cheapest forms of funding a bank could have, as consumers are generally not paid any interest in those types of accounts. At the end of March, the tangible book value per share was approximately $843. Compared to the recent price of $1,000 per share, this creates a price-to-tangible book value of 118%, a reasonably low price for a consistently well-run bank.
W.P. Carey (Ticker: WPC)- W.P. Carey provided a business update in April and confirmed its full-year 2025 AFFO guidance. In the first quarter of 2025, W.P. Carey made investments totaling approximately $275 million, primarily through sale-leasebacks of industrial properties. Additionally, the company has capital investments and commitments totaling around $120 million, which are expected to be completed in 2025. For the full year of 2025, W.P. Carey anticipates an investment volume between $1.0 billion and $1.5 billion. The company also affirms its expectation to report an AFFO of between $4.82 and $4.92 per diluted share for the year. Furthermore, the REIT continues to pay a nearly 6% cash dividend, which is fully covered by its operations.
People’s Financial (Ticker: PFBX)— Like FMCB, our special situation regional bank (PFBX) is starting to realize benefits from the Federal Reserve’s 100 basis point rate cut at the end of 2024, bringing down funding costs. Still, we believe the bank’s shareholders would be best served by having management put the bank up for sale. While recent operating performance has been good, the bank has been a subpar operator throughout its long history. The investment return has been strong over the years, but we believe the best returns could come with a sale. We target a sale price on the bank being in the $27-$31 per share range (compared to the current $19.30 cost). Activist and largest investor Joe Stilwell will continue accumulating PFBX shares and press leadership to sell the bank to another regional bank. Stilwell continues acquiring shares in the low $19s, possibly providing a nice floor on the share price.
American Tower (Ticker: AMT)- American Tower had a strong start to 2025, with property revenue, adjusted EBITDA, and attributable AFFO per share surpassing initial expectations. Leadership highlighted the resilience of mobile data demand and network investments, particularly in 5G equipment upgrades by U.S. carriers, which are anticipated to continue through 2026. Management reaffirmed guidance for organic tenant billing growth of approximately 5% in 2025, with growth in the U.S. and Canada projected at 4.3% or more (5.3% when excluding Sprint churn). Growth in international markets is expected to reach 6%. The market responded positively to the earnings report, with the stock rising by more than 4% on the day following the release.
April brought even more volatility to capital markets. During such times, we are even more grateful for your continued trust in us to manage your assets. On April 9th, Mike Berkhahn and I hosted a 90-minute video discussing the recent events. If you did not participate in the call but are interested in watching, please contact us, and we will provide a replay link so you can watch at your convenience.
Best regards,
Stash J. Graham