Do You Know This Miniature Berkshire Clone?

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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 mill and 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 one member 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 discount from 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.