In classic Otter Tail
A couple of quarters ago, it was plastics carrying the heavy load, and last quarter it was heavy construction's turn. This time, the picture is a bit more balanced, and the combined one-two punch of plastics and manufacturing has overtaken power generation as the biggest profit driver.
Now, some of the electric weakness isn't expected to be temporary, because part of the problem stems from more efficient power operations across the Midwest interchange area, giving Otter Tail fewer opportunities to step up and fill the gaps. It's the end of a market opportunity, as the grid matures and each player is able to forecast operational needs with greater accuracy. In its wake, the other segments are expected to shoulder a heavier load and turn the dropping margins back up.
Of course, if the Big Stone II coal-burning plant does get final approvals as expected, it would create new sell-through markets for Otter Tail in about five years, because the increased capacity should be a valuable commodity. If not, there might be room for a few wind towers around Minnesota and South Dakota, or so I've heard. But the growth here likely won't come from the core electric operations for years. That's exactly why management made sure of a healthy diversification profile, enabling growth and steady income even when the mainstay segment is running in place.
This isn't Berkshire Hathaway
So if you're looking for a stable place to park your investment funds for years to come, you could do far worse than looking toward rural Minnesota for ideas. And remember that all the great ones started small, as well. Time is on your side.
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Otter Tail is a Motley Fool Hidden Gems recommendation, and Berkshire Hathaway and 3M are Inside Value picks. To see why Fools like diversification, try a 30-day free trial to one of our premium services -- no strings attached.