Small-cap stocks can deliver explosive gains -- or sizable losses. Choose well, and these high-risk yet potentially high-reward stocks can deliver multibagger returns and turbocharge your portfolio's overall performance. But choose poorly, and a small-cap stock can produce painful losses, up to and including a complete loss of capital should the business be forced into bankruptcy.
That's why it's so important to invest in only the strongest of these companies -- those that possess the best business models and enjoy the largest growth opportunities. In this regard, here's one of the most intriguing small-cap stocks available in the market today.
In the mold of a young Berkshire Hathaway (BRK.A 2.63%) (BRK.B 2.82%), Boston Omaha (BOC 4.39%) is a small conglomerate designed to generate attractive long-term returns through the consistent acquisition of undervalued assets. Its current businesses include insurance, real estate, and advertising, and the company plans to expand within these areas and others via both acquisitions and organic growth.
Interestingly, Boston Omaha co-CEO Alex Buffett Rozek is Warren Buffett's grandnephew, though Berkshire Hathaway is not affiliated with the company in any way. Still, it's clear that Buffett holds Rozek in high regard. "I think the world of Alex, but we don't have anything to do with his decision-making or anything of the sort," Buffett said in a Wall Street Journal interview (may require subscription). "He's got a good mind, a very good mind, and he certainly has good values."
Moreover, like both Buffett and Berkshire Hathaway vice chairman Charlie Munger, Rozek and his co-CEO Adam Peterson have their interests well-aligned with those of long-term investors; Peterson and Rozek both own large stakes in Boston Omaha. In addition, their base salaries have been set at the federal minimum wage, and they don't earn a bonus unless they grow Boston Omaha's book value per share -- which, not incidentally, is Buffett's preferred way to measure performance -- by more than 6% annually.
All told, Boston Omaha is still very early in its life as a public company -- its initial public offering was in June 2017 -- and not yet profitable. Yet Rozek and Peterson are currently building the infrastructure to support a far larger business, and as the company gains scale, sizable profits are likely to follow. Additionally, with a market cap of just $400 million, Boston Omaha will find it much easier to identify needle-moving investments than the massive, $500 billion Berkshire Hathaway. Thus, unlike Berkshire itself, this baby-sized version of Berkshire can look to nearly any area of the market to deploy its $90 million in cash reserves as it seeks to create value for its investors in the years ahead.
Better still, Boston Omaha's shares can currently be had for around 2 times book value -- a fair price to pay for a business that could potentially compound its shareholders' wealth for decades to come.