Some of the finest companies in the world are
small, obscure, and underfollowed. This is both good and
bad news for us investors.
Take, for example, micro-conglomerate
Otter Tail (Nasdaq: OTTR), which features a
plethora of businesses built around a dependable core of
electric power generation.
Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B)
started out as a textile milland then shaped its success
around the financial stability of an insurance business.
Otter Tail has adopted a similar approach, albeit on a
smaller scale.
This is a proven business model with many advantages, and
subsequently other mini-conglomerates like
Fortune Brands (NYSE: FO) and the aptly named
Compass Diversified Holdings (Nasdaq: CODI)
have followed Berkshire's
lead. In my opinion, Otter Tail is doing it as
well as anybody.
Otter Tail's sector-agnostic portfolio of businesses
includes heavy manufacturing, plastic pipes, medical
equipment, and dried potato flakes. Come rain or shine, you
just know that at least
onemember of this diverse group will deliver an
outstanding performance. This time, it was the food
ingredient division that came up aces, with a 22% sales boost
over the third quarter of 2008. The division also turned in
an operating profit of $3.1 million vs. a loss of $1.6
million the year before.
The workhorse electric utility segment checked in with
lower revenue but increased operating income by 40% year over
year. Altogether, Otter Tail saw 10% higher net profits
compared to the year-ago period (although slightly down on a
per-share basis), beating analyst expectations by $0.02 a
share.
If a company delivers solid results, but nobody is
listening, did the report even make a sound? Otter Tail's
share price had been climbing in a lumpy but relentless
manner for years, delivering substantial and reliable
dividends along the way, when the market crash of 2008 came
along. The result is, at least for now,
a generous 5.2% dividend yield, and an equally generous
50%
share price discountfrom its 2008 highs if you're buying
Otter Tail today. But I would be remiss if I
didn't mention that Otter Tail has often
turned to external financing to raise cash, accumulating more
than $500 million in total debt in the process, and has
issued common stock twice in as many years.
With five CAPS stars and a 98% approval rating among our
CAPS investors, I'm clearly not alone in singing the
company's praises. I'm interested to read
what you think about this company in the comment box
below.
This article was originally published as
Do You Know This Miniature Berkshire Clone?on
Fool.com
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