This Stock Is Like a Mini-Berkshire Hathaway, and It Could Soar Soon

Boston Omaha (BOC -0.39%) has pivoted in its business model, and it's gotten the attention of investors. In this clip from "The Rank" on Motley Fool Live, recorded on May 2, Motley Fool contributor Matt Frankel discusses how he ranked Boston Omaha and the reasons it might make a great long-term investment.

Matt Frankel: Boston Omaha is often compared to an early stage Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%), but that's kind of a lazy explanation, in my opinion. They are a smaller company. Their market cap is about 0.1% the size of Berkshire's, so not even really a fair comparison. There's two main parts of their business. They have subsidiary businesses. Those are in billboard advertising, insurance. They write surety insurance, which a lot of businesses have to carry to protect their customers and clients and things like that. 

Jason Hall: So, if you have somebody come to your house and they're bonded.

Frankel: Right. A lot of financial advisors carry surety insurance. And then there is a rural broadband, fiber optic internet infrastructure, things like that. It just announced a big acquisition on that side -- InfoWest they're acquiring, which will double that part of their business. And then the other side of their business is what they kind of recently recategorized into Boston Omaha Asset Management, where all of their other, their non-core businesses, are located. Just to name a couple of the big parts of that. They own 26% of Sky Harbour (SKYH -0.33%) that recently went public. They're an aviation infrastructure company, and they have warrants to buy another 6%, so they could end up owning a third of that if they want to. That one recently went public through their SPAC. It's been volatile to say, to put it very mildly. But that one could be a big one if it's a winner. They sold some of their Dreamfinders Homes (DFH -2.52%) investment. They were an early investor in that business before it went public. They pared down that stake a little bit to help fund their Sky Harbor investment, but they still own over $50 million of Dreamfinders Homes, which I mentioned the entire company's worth under $700 million, so that's a big chunk of them. They have a bunch of other minority investments including a bank, a commercial real estate brokerage, and a few others. And their most recent thing: they're starting a built-to-rent home business, which was originally intended to be their fourth business segment. But they recently announced a really big pivot. I don't know if Jason's familiar with this yet. They announced this in their annual letter that published about a week ago. They are going to run that as a fund, meaning that they're going to contribute 10% of the capital is what they said. And they're going to bring in outside investors to help build out the fund. There's a few reasons they're doing this. One, it allows them to make this business and scale it quicker and make it bigger than they otherwise would be able to. They're capping the initial fund, which they're calling Fund 1 in $115 million in initial commitments. They wouldn't have invested that out of their own capital right away, so it allows them to make this a bigger business than originally planned. That 'Fund 1,' by the way, implies that this might be the first of many. And the economics are much better in this fund model. This is kind of like the SPAC model in a lot of ways. They benefit from their own stake in the fund, which I said, they're contributing 10% of the capital. So out of $150 million, they're putting in $15 [million]. And because they are the fund manager, they get a share of any profits they generate for all the other investors. So they get a percentage of the profits generated off the other $140 million [Editor's note: $135 million] in addition to the profits that their own capital is generating. So if it's successful, this could be a very, very profitable arrangement for Boston Omaha. And here's one really interesting point: the $150 [million] is just initial commitments. They want to keep scaling this fund and eventually spit it out as a Real Estate Investment Trust as it reaches scale. This is definitely a big pivot in their business model, and it's one that I'm a big fan of. So that's kind of one of the reasons I ranked this as high as I did and why I've added a lot of my own capital to it over the past couple of years, actually.