When Warren Buffett's Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) bought Clayton Homes two years ago, it got a lot of value investors to thinking about, well, something most profit-seeking investors don't think a lot about -- manufactured housing stocks. Buffett has a legendary nose for value, however. Over the past 30 years or so, the value of his company has increased nearly 1,300 times. Numbers like that get people's attention.

And so it was that, when Hidden Gems lead analyst Tom Gardner saw a similar value in a supplier to the manufactured housing industry -- Drew Industries (NYSE:DW) -- he recommended the company to our readers (two months later, the stock's already up 24%.)

Similarly, when I saw that Clayton competitor Champion Enterprises (NYSE:CHB) reported earnings last week, I decided to take a look. Champion shares a lot of similarities with Clayton. The two companies are of almost identical size, with about the same numbers of employees and about the same amount of annual sales. The primary difference between the two companies back in 2003 was that Champion was losing almost as much money as Clayton was earning (on $1.2 billion in revenues, Clayton earned $113 million and Champion lost $103 million).

But that gap in performance, it seems, is starting to close. True, other companies in this industry continue to lose money, with Fleetwood (NYSE:FLE) reporting a $161 million loss in fiscal 2005, and smaller competitor Palm Harbor Homes (NASDAQ:PHHM) losing $3.8 million last year (although it just finished reporting a profitable fiscal first quarter). But Champion reported a small profit for itself last year -- its first full-year profit in six years. And over the past six months, Champion has kept itself in the black.

According to its fiscal Q2 2005 earnings release, top-line growth year to date came in at a respectable 18% over the first half of fiscal 2004. Gross margins grew even more strongly, up 27%. And net income increased an impressive 78%.

Perhaps most importantly, Champion generated positive free cash flow in the first half of 2005 -- a feat it hadn't managed to accomplish by this time one year ago. FCF from continuing operations came in at $6.9 million. Granted, that's not a lot of money in an absolute sense. But it's a considerable improvement over the company's $31.9 million in negative free cash flow in the first six months of last year.

Want to see which other companies have been successful for Hidden Gems ? Take a free, no-obligation trial today.

Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.