Two Hidden Gems from the OTC Market

Two time-tested businesses trading at 50 cents on the dollar.

Jul 23, 2025

Both of today’s stocks trade on the OTC market. A little, overlooked corner of the stock market where the rules are a bit looser, but the chances of finding anomalies are often better.

You’ll often come across dusty old businesses from the 60s, regional banks with 100-year histories, or small family-run companies that never uplisted. Since most big funds don’t bother with OTC stocks, there’s quite the chance for the ambitious investor to find some undervalued opportunities.

Of course, there’s also a fair share of garbage on there. So you’ll need to do a lot of filtering and searching to find some profitable, cash-flowing, dividend-paying old-school business. But if you’re a little patient and picky, I have no doubt you’ll come across something interesting.

Sadly for us, the number of quality OTC stocks is shrinking. Many businesses have realized they can achieve much higher valuations trading privately. But from an investor’s perspective, that’s exactly what you want: businesses trading at prices you wouldn’t even get in a private deal or small acquisition. That’s the magic of Mr. Market.

Anyway, as I said, both of today’s stocks trade on the OTC market. Both are older businesses, growing at a healthy rate, profitable, and dividend-paying.

I should say, I don’t think they’ll 1000x in a year or ride the next AI wave. But I do think they’re trading at 50–60 cents on the dollar and represent classic value opportunities in the old-school Buffett & Graham style.

I hope you enjoy the read.

McRae Industries

McRae Industries ($MCRAA) makes Boots. Different kinds of boots. From classic Western styles with fancy tooled leather to tough work boots and full-on combat boots for the U.S. military.

The company has a market cap of $105 million and an enterprise value of just $63.5 million. They have been around since 1959 and are based in Mt. Gilead, North Carolina, about 90 minutes from Charlotte.

McRae has remained consistently profitable, with no net or operating losses since 2015, except for 2020. They also have a habit of paying out special dividends when they sell off real estate or other assets. They make good money. They just don’t always use it that efficiently. More on that later.

Ownership

Since McRae trades on the OTC, it no longer files financial statements with the SEC. In fact, the company stopped filing back in 2005 to reduce costs. However, McRae still publishes audited financials each year, with Grant Thornton serving as auditor for over a decade.

Because of that decision, we also no longer get up-to-date ownership data. The last available numbers are from 2005, when the McRae family owned about 40% of the Class A shares, 60% of the Class B shares, and controlled roughly 53% of all voting power.

The company also stopped disclosing executive compensation. Back then, Gary McRae (President) was making around $250K, and the full executive team earned a combined $800K. It's safe to assume those numbers have gone up with profits, but there’s no public data to confirm that.

In short: This is not an institutionally held business. The majority of shares are still in private hands, and the McRae family remains in control.

The Numbers

When I go through the numbers of a business, I usually start with their annual report.

Funny enough, the first thing that stood out to me in McRae’s most recent report wasn’t some specific financial metric. It was the cover. (Who would’ve thought?)

Unlike the usual plain-text-in-Arial-on-a-white-background setup you see with most small businesses, McRae put some real effort into the design. So it stood out quite a bit.

Here’s a screenshot:

Income Statement

Revenue has been growing steadily since the COVID dip, with a bit of stagnation more recently. But that flattening is something seen across the entire industry.

Gross margins have been slowly but consistently improving. Same goes for operating margins, although those, too, have stagnated a bit since 2022.

Net income has improved every year since their small net loss in 2020 and is now significantly above pre-COVID levels. In 2024, they reached a record profit of $12.79 million.

What’s interesting in their income statement is the $0.5 million they make in investment income and the additional earnings booked under "Other Non-Operating Income."

These numbers are mostly a result of their real estate portfolio, from which they earn steady interest and occasional profits from asset sales.

McRae Industries holds investment properties primarily in Berkeley County, South Carolina. These aren’t used for operations; they’re strictly held as investments.

Personally, I’m not a fan of that part of the business. I get it, but I don’t like it.

The company generates more than enough profit from boots alone, yet instead of returning excess cash to shareholders, management either lets it pile up on the balance sheet or uses it to buy real estate.

Even if they used it for well-thought-out acquisitions, that would be better than letting it sit idle (although, to be fair, most acquisitions destroy value, and companies with aggressive M&A strategies are usually better avoided).

Still, I doubt they’re able to outperform professional real estate investors, whether that’s REITs or specialized private funds, who focus full-time on this space. It’s unlikely that you can run a $100 million boot business and beat full-time real estate pros on the side.

They highlight the impact of these investments themselves:

„This increase in net earnings is primarily the result of a decrease in our western/lifestyle products offset by an increase in our military boot operation, land sales, and investment income.“

Currently, they pay a modest dividend of $0.56 per share and occasionally issue special dividends when they sell real estate.

Balance Sheet

Their balance sheet is in pristine condition.

Aside from a small $1.2 million capital lease, their balance sheet has not been disturbed by anyone. Kind of like an untouched fresh ski slope in the early morning.

They hold $43.2 million in cash and investments, and, again, aside from the small lease, the company is completely debt-free.

That gives the business a lot of strength and makes the risk of insolvency practically zero.

But it also highlights their inefficiency when it comes to capital allocation. There’s plenty of unused value just sitting there.

Revenue Breakdown

I want to take a moment to go into a bit more detail on how McRae’s revenue is split between segments.

While most of their business still comes from Western and work boots, there have been some interesting developments in their military segment that could create real value going forward.

(If you’re not interested in the weeds here, feel free to skip to the valuation part.)

As mentioned earlier, part of McRae’s business is manufacturing military boots and selling them to the U.S. government. It’s not their biggest segment and historically hasn’t been the main earnings driver. Still, it’s far from irrelevant.

In 2024, the military segment brought in $33.6 million, about 27% of total revenue.

„Sales to the U.S. Government amounted to 23%, 18%, and 12%, of total consolidated net revenues for fiscal years ended 2024, 2023, and 2022, respectively.“

If you're wondering why I said 27% while the company stated 23%, that's because they’re now also selling military boots to foreign governments and non-governmental security agencies or special forces.

„We also have a contract with a foreign government for military combat boots and are working hard to increase our commercial military boot sales.“

So while this business has shown a clear, albeit volatile, growth trend in recent years, with a notable improvement in profitability in 2024, things have started to soften again in 2025.

„While we currently have contracts for four different boots with the United States Government, their demand for military boots is not as robust as it has been in previous years. This can have a negative impact on our manufacturing efficiency and cost.“

That slowdown is the main reason why total revenue and earnings for the last twelve months (LTM) are down compared to fiscal year 2024.

Here’s how revenue in the military segment evolved in recent years:

Until 2024, the segment was actually unprofitable, mainly because the old contracts with the U.S. government had been signed before inflation spiked, at prices that no longer reflected the real cost environment.

That changed in April 2024, when McRae received a new large order from the U.S. Marine Corps, this time at more market-adjusted terms. Together with production efficiency gains, this helped make the military segment profitable for the first time in years.

I also found it very promising that McRae is now actively working to increase foreign government contracts and commercial military boot sales.

That makes sense for several reasons:

Diversification
Right now, they’re heavily dependent on the U.S. government. Expanding the customer base would reduce concentration risk.
Better margins
U.S. military contracts often come with strict bidding processes and margin limitations. Foreign customers, especially in smaller or politically unstable countries, are often willing to pay higher prices if quality, reliability, and delivery timelines are solid.
Utilization of capacity
McRae already has an established and proven military boot production setup. If U.S. orders soften, like they did in 2025, foreign sales could help keep the factories running near full capacity.

I see a lot of potential in this expansion strategy.

And I also like how openly McRae communicates with shareholders about it. For instance, they wrote:

“We continue to pursue new business opportunities with the U.S. military and other foreign militaries.”

And

„We also have a contract with a foreign government for military combat boots and are working hard to increase our commercial military boot sales.“

This may be just one example, but McRae has a history of openly discussing their plans, possibilities, challenges, and shifts in market trends. They speak to shareholders like partners.

That boosts my confidence in the quality of their management team, especially in an era where too many executives treat annual reports like marketing brochures and try to hide problems until they’ve grown too big to ignore.

Valuation

McRae currently trades at a P/E of 8.7, far below its 20-year average of around 20x earnings. It offers a 3% dividend yield (including the recent special dividend) and trades just around book value, with a P/B ratio of 1.04.

Given the company’s consistency, strong balance sheet, and growth potential in its military segment, I think it’s clearly undervalued.

It’s a rare little opportunity for anyone looking to own an old-school business that doesn’t seem like it’s going away anytime soon.

Tariffs

Even though there’s very little coverage on McRae out there, I still came across concerns about the potential impact of tariffs.

And while that’s always a fair thing to watch, the company addressed this directly in its latest quarterly report:

„At this time, our income has not been materially affected by tariffs. We are sourcing boots primarily from Mexico and India, with a small amount of production coming from Vietnam. Future tariffs are uncertain, as well as the impact they will have on our income and supply chain.“

So, yes, things could change. And with their expansion plans, they may run into some tariff issues down the line. But for now, they seem to be unaffected.

Competitors

McRae’s biggest competitor is the company behind Justin and Tony Lama boots, which happens to be Berkshire Hathaway. But since boots make up only a tiny piece of the broader conglomerate, there’s virtually no disclosure.

A more relevant comparison is Rocky Brands (NASDAQ: RCKY), a public company that, like McRae, focuses only on boots. There’s a slight difference in product mix. Rocky gets most of its sales from work boots (about $190 million), while Western footwear is secondary ($82 million). Rocky also has a significant military business ($39M of sales).

Rocky Brands is actually an interesting potential investment in its own right. I thought about writing about them before. However, I like McRae much more.

Their balance sheet is in much better shape. McRae carries no long-term debt, while Rocky has quite the debt load. Also, Rocky’s sales have declined recently, while McRae’s have merely flattened. And while Rocky trades at (a still-cheap) 12.5x earnings, McRae trades at just 8.7x.

Dimeco, Inc.

The case for the second stock is just as interesting.

The business is called Dimeco, Inc. ($DIMC), or, as their website puts it, simply “The Dime Bank.”

Pretty funny name, if you ask me.

As the name suggests, this is a small regional bank, with a market cap of just $92.6M. And a pretty old one at that. Founded in 1905, the bank has been around for 120 years, serving its local community in northeastern Pennsylvania. Today, it operates out of seven branches in the region.

Dimeco does what you’d expect from a classic community bank: it focuses heavily on real estate lending, both residential and commercial, and also makes consumer and small business loans.

What I really like about this bank is how well-managed and consistent it is. Over the past 30 years, shareholders have seen more than 10% annual returns, including dividends.

Still, despite this long-term strength, the market seems to have missed the growth of the past eight years, with shares trading at roughly the same price as in 2017.

That creates a pretty clear discount opportunity today.