Investors who limit their investments to the NYSE and Nasdaq are missing out on some huge opportunities.
Consider Hong Kong-based conglomerate Swire Pacific (SWRAY), which owns 82% of Swire Properties (SWPFY), a Hong Kong property developer that’s looking to expand its operations beyond China. SWPFY is working on the Brickell City Centre, a huge commercial development in Miami. The city center will contain four million square feet of retail, office, condominium and hotel space by the time the downtown development is fully completed in 2019.
As soon as I looked more closely at SWRAY’s entire operations I immediately considered it one of my five OTC stocks to buy. What can I say? I have a thing for conglomerates — even though this sponsored ADR trades just 3,900 shares per day.
I personally don’t have a problem with SWRAYs lack of liquidity but some might. For this reason, I’ll filter my choices for the five OTC stocks to buy so that all of them have market caps of at least $10 billion. That might not placate liquidity concerns (tough to do for any OTC stocks), but at least you’ll know you’re looking at large, fundamentally sound businesses.
OTC Stocks to Buy — Sodexo (SDXAY)
I tend to think of Sodexo (SDXAY) as being solely a competitor to Sysco (SYY) in institutional foodservice, but it’s actually so much more. When you look at its full operations, it’s easy to see why SDXAY is one of the best OTC stocks out there.
Sodexo provides services to corporations, health care facilities, and other types of operations requiring service-based workers. SDXAY does it all. No longer just foodservice, the company provides a laundry list of services that includes landscaping, project management, the operation of corporate fitness centers and seemingly everything else in between.
Sodexo provides on-site services to customers all over the world and even has a benefits and rewards division that provides corporations with ways to engage and incentivize their employees. While still a very tiny segment of its overall business, this division delivered 14% organic growth in the first nine months of 2014 thanks to big success in Latin America. Down the road, this could be a significant driver of growth.
Sodexo expects organic revenue growth of between 2.2% and 2.5% for the entire 2014 along with an 11% increase in operating profits. Currently valued around 0.6 times sales, SDXAY has underperformed in recent years compared to both the S&P 500 and its peers in business services. Despite SDXAY stock being down 3.5% year-to-date, I expect it to bounce back near its 52-week high of $109.72 by the end of the year.
OTC Stocks to Buy — Kao Corporation (KCRPY)
I’ve liked Estee Lauder (EL) for some time, and Kao Corporation (KCRPY), a very similar company, has landed on my radar despite operating in Japan. The $22 billion market cap has a number of brands that are household names over here in North America, including Bioré, Jergens, John Frieda, Ban, and KMS California.
While its beauty care segment is its biggest in terms of revenue — $2.8 billion in first six months of 2014 out of $6.6 billion — its fabric, home care and chemical businesses accounted for 72% of its overall operating profits. The unglamorous parts of its business do all the heavy lifting while the beauty brands getting all the buzz.
KCRPY stock has been on quite a run in 2014, up 30% year-to-date — which means you’ll want to wait until the stock comes back down to earth. With the stock currently trading at or near its all-time high, I’d think twice before buying above $40. That said, it never hurts to pay a fair price for a great company, which Kao is.
Five OTC Stocks to Buy — Orkla ASA (ORKLY)
Paying homage to my Scandinavian ancestors, I’ve made my third selection Norway’s largest branded consumer goods company. Orkla ASA (ORKLA) spent 17 years between 1986 and 2003 buying up food and confectionary companies in Norway, Sweden, Denmark and Finland.
Then, in 2004, management veered off into other ventures, losing some of its focus and profitability. But the company got back on track by 2009, and current CEO Peter Ruzicka (hired in February) has the task of finishing what former CEO Age Korsvold started in 2012. The company intends to have exited all non-core activities by 2016, at which time it will look to make further Nordic acquisitions while boosting organic growth and margins.
While I’m always sorry to see a conglomerate broken up, Orkla’s case warranted a renewed focus on branded consumer goods. Getting bigger through bolt-on acquisitions should allow it to grow quickly while also boosting profits.
Shareholders should be very happy with the moves. With ORKLy stock trading well below its 5-year high, I see some real upside in 2015 and beyond.
Five OTC Stocks to Buy – Kirin Holdings (KNBWY)
When most people think of the Kirin Holdings (KNBWY) brand, if they’ve even heard of it, they generally think of beer. However, the Japanese company sells more than just beer — not just in Japan but throughout Asia and other parts of the world.
Why do I like it?
Well, it owns Four Roses, one of my favorite bourbons. And KNBWY stock is much cheaper than almost any other brewery. It trades at 0.6 times sales compared to 4 times for Anheuser-Busch InBev (BUD) and 3.3 for Molson Coors (TAP).
Eventually, one of the big brewers such as BUD will buy the $12.2 billion company, and the deal is sure to value KNBWY more than 0.6 times sales. In the meantime, earn a 2%-plus annual dividend while you wait.
Five OTC Stocks to Buy – Swire Pacific (SWRAY)
I just had to leave the best for last.
Swire Pacific (SWRAY) is the company behind that Miami city center I mentioned in the intro. It’s a conglomerate divided into five segments: property, aviation, beverages, marine services, and trading & industrial. The property business I’ve already discussed. The biggest in terms of revenue is its beverages group, which, amongst other things, makes Coca-Cola for distribution in Hong Kong, Mainland China, Taiwan and the western part of the United States. In addition it owns 45% of Cathay Pacific, one of Asia’s most successful airlines.
Too many businesses to mention in such a short space, let me simply state that Swire Pacific’s stock performance has come alive in 2014 after a few years of mediocre results. I expect the momentum to carry on in 2015.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.