October Idea of the Month: Otter Tail

By Travis Johnson, Stock Gumshoe, October 31, 2008

This Halloween, I think I’d like to dress up as an otter.

Seriously, don’t otters always look like they’re having more fun than most animals?  all that sliding, and laying on your back supping on sea anemones … aaaahhh, much more relaxing than watching CNBC.

Otter Tail (OTTR), however, has not been having fun.  At least not this year.

This company, teased a while back by the Motley Fool (and a long time pick of theirs), is a conglomerate built around a small electric utility, and the shares were sent to the stratosphere on the back of enthusiasm for wind energy.  That enthusiasm was largely based on their business of building towers for wind turbines and buying shares in wind farms. The tower business is a relatively small part of the company but, in terms of revenue, is the division that’s growing the fastest.

I’ve actually been fairly conflicted about which stock to write about today — I also looked at some extremely cash-rich companies, and very nearly decided to send you to KHD Humboldt Wedag (KHD), which is an engineering and construction firm that primarily sells cement plant equipment to Asia, Eastern Europe, Russia, and the Middle East.  KHD could be bought for less than their net cash early this week, though that caught the attention of a lot of investment writers who talked it up, and the price climbed dramatically in the space of a few days.  On the cash-rich front, I’ve also been intrugued by Cowen (COWN), a niche investment bank that also trades at a big discount to their net cash position.  And on the super-stable front, I’ve been tempted to delve into some of the pipeline companies that we’ve seen so heavily teased lately, with both Boardwalk Pipeline Partners (BWP) and Kinder Morgan Management (KMR) looking very promising to me right now.

But in the end, I decided that the fact that Otter Tail is again trading as a reasonably priced utility — for arguably the first time in many years — means that it’s worth a look.

Earlier this year, you could have paid well over $40 for Otter Tail, when the Pickens Plan and Jim Cramer were both bringing wind energy strongly into the investor’s consciousness.  That was clearly too much — the shares were expensive relative to almost anything you can think of  — dividends, earnings, other electric utilities, other ...

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