Be it the top-down or bottom-up approach to stock selection, it’s important to analyze as many stocks as possible. Finding hidden gems from different industries often means scouring the world of OTC stocks.
Over-the-counter stocks, or OTC stocks, can be found on the Over the Counter Bulletin Board (OTCBB). There are quality names from which to choose; failing to list on the Nasdaq composite or the New York Stock Exchange does not necessarily undermine the quality of these stocks.
This column will examine attractive OTC stocks that are worth holding in the core portfolio. The stocks I will discuss have operations outside the United States. Therefore, these names also provide regional diversification.
Here are four to consider:
- Lundin Energy AB (OTCMKTS:LNDNF)
- Alacer Gold (OTCMKTS:ALIAF)
- Tencent Holdings (OTCMKTS:TCEHY)
- Teranga Gold Corporation (OTCMKTS:TGCDF)
Best OTC Stocks to Buy: Lundin Energy AB (LNDNF)
Lundin Energy is one of the leading exploration and production companies in Europe. With 1 billion barrels of reserves and resources, the company is on a high growth trajectory. This makes LNDNF stock worth considering.
Lundin Energy believes that company’s cash flow break-even will be $15 per barrel on an average over the next seven years. This is one of the key reasons to be bullish on the stock. Even at relatively low oil prices, the company is positioned to deliver robust cash flows.
From a growth perspective, the company reported production of 93,000 barrels of oil per day in fiscal year 2019. For the current year, production is expected to increase to 157,000 barrels. Within the next few years, the company’s production target is in excess of 200,000 barrels. Clearly, as production surges in the coming years, cash flow will swell and the LNDNF stock will trend higher.
Another reason to like the company is the focus on the Norwegian Continental Shelf. The reason is free from geopolitical tensions and there are ample exploration opportunities. The potential can be understood from the fact that the company’s reserve replacement ratio has been well over 100% in the last six years.
Overall, Lundin Energy is a quality name with a robust growth outlook. In addition, the company has been paying dividends and as production surges, there is visibility for dividend growth.
Alacer Gold (ALIAF)
Alacer Gold is a Canada-based gold producer. For the coming years, ALIAF stock has a bright growth outlook and I expect meaningful value creation. ALIAF stock has surged by 110% in the last one year. However, there is more juice in the rally.
Gold has been surging with expansionary monetary policies supporting upside for the precious metal. Considering the impact of the novel coronavirus on economic growth, expansionary policies will continue and this is positive for the precious metal.
Alacer Gold there has a critical tailwind that will allow the company to accelerate cash flows and value creation. For the current year, the company expects the all-in-sustaining-cost at $735 to $785 an ounce. With gold at $1,900 an ounce, EBITDA margin and free cash flow are likely to be robust.
Another reason to like Alacer Gold is the fact that the company has a strong balance sheet. As of May 2020, the company reported a net debt of just $25 million. This financial flexibility gives ample headroom for aggressive growth.
Tencent Holdings (TCEHY)
Among OTC stocks, Tencent Holdings is an attractive bet for the long term. In the last year, TCHEY stock moved higher by 46% and I expect the bullish momentum to sustain.
The company has a diversified revenue stream with several high-growth opportunities. As an example, the company is the second-largest cloud service provider in China by revenue, trailing only Alibaba (NYSE:BABA). The cloud business will continue at a robust pace and Tencent Holdings stands to benefit.
The company still derives a bulk of revenue from online games, social network and online advertising. However, the financial technology and business services segment is another potential growth driver for the coming years.
From a financial perspective, the company has been generating free cash flow on a consistent basis. Improving fundamentals through deleveraging provides high financial flexibility for aggressive growth. The company has also been eyeing acquisitions and this can help in accelerating top-line and earnings growth.
Teranga Gold Corporation (TGCDF)
Considering the bullish outlook for gold, I am tempted to discuss another gold mining company with a potentially bright future. Teranga Gold is a low-cost gold producer in West Africa. The company has been delivering robust growth, which is reflected in the stock price. TGCDF stock has surged by 200% in the last one year.
For the first quarter, Teranga reported 27% increase in gold production along with a 46% increase in revenue. Importantly, the company’s adjusted EBITDA growth was also robust at 36%. Given the fact that gold is trending higher, adjusted EBITDA and operating cash flows will swell in the coming quarters. This is likely to translate into further upside for TGCDF stock.
The company has proved and probable reserves of 6.4 million ounces. This provides visibility for long-term production upside and sustained cash flows.
At the end of 2019, the company acquired Massawa gold project from a wholly-owned subsidiary of Barrick Gold (NYSE:GOLD). This indicates the company’s appetite for inorganic growth. Further acquisitions can accelerate the growth momentum.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock-specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.