Q2 2025 Investor Audibles: Laughing Water Capital, Jackson Peak Capital, Alluvial Capital

Episode Summary

Executive Summary: The episode is a compilation of quarterly letters from three value-oriented managers. It emphasizes buying misunderstood, cash-generative businesses with aligned insiders, hidden assets, and strong downside protection. Across the letters, the managers highlight tariff volatility, market dislocations, and event-driven opportunities while arguing that disciplined capital allocation, buybacks, and operational improvement can drive strong long-term returns.

Main Topics: Value investing in misunderstood businesses (Priority: 5/5): The letters repeatedly stress buying companies that screen poorly on quantitative metrics but have strong underlying economics, hidden asset value, and aligned management. Laughing Water Capital portfolio update (Priority: 5/5): Matt Sweeney discusses Q2 performance, portfolio stability despite macro noise, and several new and existing positions including Claris, Secure Waste Infrastructure, LifeCorp, NextNav, PAR Technology, Vistry, and Thrive. Deep dive on Secure Waste Infrastructure (Priority: 5/5): A long appendix argues that Secure has transformed from cyclical oil services into a recurring waste-management business with strong moats, misleading reported margins, insider alignment, aggressive buybacks, and substantial upside. Jackson Peak Capital's long/short positioning (Priority: 4/5): Patrick O'Brien explains strong Q2 returns driven by net exposure, event-driven trades, AI beneficiaries, and European stimulus/defense names, while warning that markets are priced for optimistic policy and growth outcomes. Alluvial Capital's special situations and cash-flow businesses (Priority: 5/5): Dave Waters highlights a portfolio of boring but undervalued businesses, including nuclear/data-center power, food companies, real estate, and NOL shells, with emphasis on balance-sheet strength and catalysts. Event-driven and catalyst investing (Priority: 4/5): Across letters, managers describe profits from SPAC baskets, buyouts, asset sales, tender offers, restructurings, and regulatory or policy catalysts that can re-rate undervalued stocks.

Key Arguments: Market participants and quants often miss businesses with unusual accounting, hidden assets, or transition periods; patient fundamental investors can exploit that gap. Aligned insiders matter because they can force market recognition through buybacks, asset sales, restructurings, or eventual sale processes. Secure Waste Infrastructure is argued to be materially more profitable and stable than its reported metrics suggest once pass-through revenue is removed. LifeCorp/next-gen CDMO and NextNav are framed as policy- and regulation-driven winners with potential takeover or monetization upside. Jackson Peak believes markets are vulnerable to a sharp repricing if bullish assumptions on tariffs, rates, fiscal stimulus, and AI fail to materialize. Alluvial prefers essential, cash-generative, balance-sheet-strong businesses and special situations where downside is protected by cash, hard assets, or tax attributes. Capital allocation actions such as buybacks, divestitures, and acquisitions are central to unlocking value in these portfolios.

Data Points: Laughing Water Capital Q2 2025 return: 13.1% net - Class A investment return for Q2 2025 S&P 500 Q2 2025 return: 10.1% - Benchmark return over the same quarter Russell 2000 Q2 2025 return: 8.9% - Benchmark return cited in the letter Jackson Peak Capital Q2 2025 return: 24% net - Long/short strategy performance in Q2 HFRX Equity Hedge Index Q2 2025 return: 4.1% - Benchmark for equity hedge funds Alluvial Fund Q2 2025 return: 8.5% - Quarterly fund performance Alluvial Fund YTD 2025 return: 15.6% - Performance through June 30 Secure recurring cash flows: 80% - Current recurring share of cash flows after business transformation Secure historical cyclical cash flows: 60% - Share of cash flows previously tied to drilling/completion activity Secure reported gross margin: 4% - Mechanical screeners' view using reported accounting Secure adjusted gross margin: 30% - After removing pass-through oil purchase/resale items Secure reported EBIT margin: 2.5% - Mechanical screener view Secure adjusted EBIT margin: 19% - After common-sense adjustments Secure buybacks in 2024: 19% of shares repurchased - Management share-reduction activity Secure Q1 2025 repurchases: $79 million at an average price of $14.96 - Aggressive buyback activity in early 2025 Secure shareholder yield in 2025: 12.5% - Estimated return of capital via buybacks and dividends Secure leverage: 1.3x levered ex leases - Current balance sheet leverage versus preferred range of 2.0x to 2.5x Secure 2024 facility sale: $1.15 billion - Sale of 29 facilities to Waste Connections after divestiture order Secure facility sale valuation: 7.5x EBITDA - Used as a valuation floor reference Claris current valuation: <0.4x sales - Market valuation despite brand and strategic assets Claris shareholder incentives: 18% ownership plus options on 1 million shares - Chairman Warren Canders' stake and vesting structure LifeCorp implied acquisition value: >$13 per share today, closer to $16 on 2026 numbers - Estimate based on transaction multiples NextNav potential value: $35-$60 per share - Possible monetization/transaction range if FCC path succeeds PAR Technology growth update: Second-half acceleration expected - Burger King rollout and customer pipeline expansion UK affordable housing funding: $39 billion over 10 years - New government program expected to benefit Vistry Vistry prior housing program: $11.8 billion over 5 years - Older funding level for comparison Talon Energy contract size: 1,920 MW - Agreement with Amazon to provide nuclear power to data centers Talon incremental annual FCF per share: at least $7 by 2032 - Management guidance tied to Amazon contract Jackson Peak net exposure at Q2 end: 56% - Up from 13% in Q1 after buying the April selloff Jackson Peak SPAC basket contribution: 12.1% gross returns - Event-driven trade across 21 SPACs Seneca Foods debt reduction: $259 million or $37 per share - Working capital normalization after a lighter harvest year ContextLogic cash: $222 million - Balance sheet supporting acquisition or liquidation optionality ContextLogic cash per share: just over $6.5 per share - Available cash assuming BC Partners' preferred investment is exercised

Pivotal Quotes: "We want to make high risk-adjusted returns consistently, continuously learn while doing so, and have a lot of fun along the way." — Brandon (MacroOps intro): Opening statement describing the firm's investing mission "In my view, the company has real brand value." — Matt Sweeney: Claris discussion explaining why the stock may be undervalued despite weak reported metrics "I believe Secure's current business is a result of a multi-year transition that obscures the operating history, wealth of vagaries of generally accepted accounting principles fail to capture the true economics of the business." — Matt Sweeney: Core thesis for Secure Waste Infrastructure in the appendix

Implications: The letters suggest opportunity in ignored, catalyst-rich stocks where accounting noise masks real economics. For investors, patience, insider alignment, and balance-sheet strength may matter more than headline multiples in a volatile, policy-driven market.