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Could This Stock Be the Next Berkshire Hathaway?

By Matthew Frankel, CFP® – Oct 31, 2021 at 6:12AM

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This conglomerate is small, but is following in Warren Buffett's footsteps.

Boston Omaha (BOC -1.01%) is a relatively small company right now, especially when compared with fellow conglomerate Berkshire Hathaway (BRK.A 0.01%) (BRK.B -0.57%), which is roughly 600 times its size. However, as Fool.com contributor Matt Frankel, CFP®, explains in this Fool Live clip, recorded on Oct. 18, Boston Omaha is using all of Buffett's rules for successful conglomerate-building and could certainly get much larger in the years to come. 

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Matt Frankel: I'll give a quick overview and why I own it. This is one that I actually bought with the intention of it being one of my larger positions. It's No. 3 out of my top three in terms of size. Boston Omaha gets compared a lot to an early-stage Berkshire Hathaway. Now, that's not to say that this is going to deliver 2,000,000% returns over the next 50 years like Berkshire did, but there are a lot of similarities in the business model.

Boston Omaha, they're doing the conglomerate in the Buffett way in that they own subsidiary businesses, they own minority stakes of businesses, and they'll buy common stocks. They're not afraid to not have control over a company they invest in, which is one of the things that Buffett says a lot of conglomerates do wrong; they only make acquisitions. Their wholly-owned businesses are in billboard advertising, insurance, like Berkshire, and rural broadband service, which is a massively underserved market that they're really investing heavily in.

All three of these businesses have excellent economics at scale. Even at the small scale they're at now, Boston Omaha's rural broadband has over an 85% gross margin already, and that's at a small scale. They also make minority investments. One of their more successful ones was they bought a stake in a company called Dream Finders Homes (DFH 0.09%), a home builder that just went public. That's already been a 10-bagger for the company. It's worth roughly $100 million at last count. They paid $10 million for it, so really successful capital allocation.

They're building a stock portfolio. Unlike Buffett, they have the advantage of not having to disclose their holdings because they're a small company. Every quarter Buffett has to say what he bought and sold. There's also another Buffett parallel that is not really part of my investment thesis, but one of their two co-CEOs is Warren Buffett's grand nephew, Alex B. Rozek. The "B" stands for Buffett, is one of their leaders. Small company, $1.1 billion market cap. I love the economics of the businesses they're focusing on. They just had a SPAC that found its deal target. That's an aviation infrastructure company. They're investing heavily in a company that builds airplane hangars at airports.

Again, boring business with great economics like all the other ones, they're boring businesses, which is one reason that a lot of people overlook the company. What could be more boring than buying a billboard on the side of a highway or buying a rural broadband route that goes to somebody's house, but these are not exciting businesses, but the economics are great. Because there are several different revenue streams, Boston Omaha can invest their profits in whichever one of their subsidiaries or something new wherever they see the best opportunity. It's like Activision has to reinvest into Activision, like Microsoft reinvests into Microsoft, into their software business. A lot of companies have to reinvest into one business and conglomerates have that element of choice. I like its compounding power over time. It's one that I'm keeping a very close eye on, because like I said, it is a micro-cap at this stage.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Matthew Frankel, CFP® owns shares of Berkshire Hathaway (B shares), Boston Omaha Corporation, and Dream Finders Homes, Inc. The Motley Fool owns shares of and recommends Activision Blizzard, Berkshire Hathaway (B shares), Boston Omaha Corporation, and Microsoft. The Motley Fool recommends Dream Finders Homes, Inc. and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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