Most investors won’t consider buying over-the-counter stocks because they think they are illiquid and thinly traded. The reality is that in 2019, a total of $329 billion in OTC stocks changed hands, providing more than 10,750 stocks with an additional marketplace for interested U.S. investors.
Oxford Metrica, in conjunction with the OTC Markets Group, published a report in May 2020. The report found that international companies with unsponsored American Depository Receipts (ADRs) who joined the OTCQX, the OTC Markets Group’s top over-the-counter marketplace, dramatically improved the U.S. ownership of their shares while also improving liquidity and investor visibility.
I’ve found some of my favorite stocks to be over-the-counter gems such as LVMH (OTCMKTS:LVMUY), arguably the most successful luxury conglomerate in the world. In March 2016, I called LVMUY one of six businesses that made malls great. It’s up 160% since then despite the retail troubles in 2020.
There are amazing OTC stocks to buy if you just take the time to find them.
- Kinaxis (OTCMKTS:KXSCF)
- Afterpay (OTCMKTS:AFTPY)
- Orsted (OTCMKTS:DNNGY)
- Pernod Ricard (OTCMKTS:PDRDY)
- Beiersdorf (OTCMKTS:BDRFY)
- Wharf Holdings (OTCMKTS:WARFY)
- Lojas Renner (OTCMKTS:LRENY)
I’ve found seven companies from five different continents that will generate excellent long-term returns. And, at the same time, they’ll provide you with a geographically diverse portfolio.
OTC Stocks: Kinaxis (KXSCF)
Hailing from Canada, it’s only appropriate that my first OTC stock is Kinaxis. It’s an Ottawa-based company, and its Rapid Response supply chain software helps businesses like Toyota (NYSE:TM) optimize their inventory situation by automating its demand and supply planning.
Since my January 2018 article, KXSCF stock is up 117%.
In May, the Globe and Mail discussed how the novel coronavirus had put Kinaxis in the proverbial driver’s seat when it comes to supply-chain solutions.
“Like no event before it, COVID-19 has highlighted the need for supply chain agility,” Kinaxis CEO John Sicard said in a May conference call. “We all feel its importance every time we enter the grocery store or pharmacy, and hope that the essential items we need are on the shelves.”
As a result of increased demand for its Rapid Response software, Kinaxis is on track to meet its 2020 guidance set before the pandemic. How many companies can make this claim halfway through the year?
On June 15, Kinaxis announced that it would acquire another Canadian company, Rubikloud. This deal will give it greater access and market share in the retail and consumer packaged goods industry.
Kinaxis has long-term growth written all over it.
I have to admit that I had never heard of Afterpay until I found it while doing a stock screen on the OTC Markets Group’s website. I’m sure if I had looked at the holdings of a few of the top Australian exchange-traded funds, I would have come upon the buy now, pay later (BNPL) financing app at some point.
An interesting statistic from a recent Afterpay presentation demonstrates that the concept of BNPL took off during the pandemic while cash and credit card use declined.
Young people are especially turning away from these traditional sources of payment. In 2002, 59% of young people in Australia (ages 20-35) owned a credit card. Today, that’s down to 36%. At the same time, the use of cash by young people (ages 18-29) went from 64% in 2002 to 14% today.
This is where Afterpay comes in.
Customers buy a product now and pay in four equal installments over eight weeks. If they pay back the full amount during this time, it costs them nothing. Afterpay pays the retailer the full amount at the time of the transaction, less a small margin it receives as compensation for the risk it’s taking on each customer.
In the United States, Afterpay has more than 15,000 brands and retailers offering its BNPL payment app with more than 5 million active customers. This all happened in just two years in the American marketplace. It’s also in the United Kingdom and New Zealand.
You don’t have to be a rocket scientist to understand why it will continue to grow in the years to come.
And we’re off to the European continent! The next OTC stock I’ve selected is Denmark-based Orsted, whose not-too-distant past includes a history in oil and gas.
In 2015, Orsted’s predecessor, Danish Oil and Natural Gas Energy Company, lost $1.78 billion after disposing of oil and gas assets in the North Sea. In 2016, it got rid of the remainder of its oil and gas assets and changed its name to Orsted, named after Hans Christian Orsted, a Danish scientist who made wind power possible.
Today, Orsted’s wind energy business is much bigger than its oil and gas business ever was. Thanks to projects like Hornsea 1, the company will generate more than 100 gigawatts of power in Europe by the end of 2030. In the U.S., it has wind farms off the New Jersey coast and solar projects in Texas with plenty of offshore and onshore wind projects in the U.S. and elsewhere.
In the first quarter of 2020, its net profit grew by 27% from 2.6 billion Danish kroner last year to 3.3 billion Danish kroner in 2019.
If Exxon Mobil (NYSE:XOM) were smart, it would buy Orsted as soon as possible.
Pernod Ricard (PDRDY)
The French liquor giant is not having a good year in 2020. Pernod Ricard’s year-to-date total loss is 11.3%. Compared to its beer, wine and distillery peers, however, this company is slightly ahead.
In April, Pernod Ricard reported third-quarter sales that were 13.3% lower than a year earlier at 1.7 billion euros. In the Americas, sales increased by 1.8% while they were down 7.8% in Europe and 25.8% in the “Asia/Rest of the World” category.
It doesn’t get any better in the fourth quarter and fiscal 2020. Pernod Ricard expects its profits for the year to decline by 20%.
However, with brands such as Havana Club rum, Chivas Regal blended Scotch, Absolut vodka and Beefeater gin, profits won’t be too hard to deliver for shareholders. That’s true in good times and bad.
The company was created in 1975 through the merger of Pernod and Ricard. Since then, it has acquired Seagram (2001), Allied Domecq (2005) and Vin & Spirit (2008). It has 16 of the world’s top 100 brands.
It’s a stock you put in a drawer and pull out in a decade or three.
This is a German company whose products I use, and I didn’t even realize it. That was until a friend of my wife’s got her to switch from a Blistex lip balm she was using that was overly addictive to a Eucerin product that reduces the desire while still doing the job the skincare product is intended to do.
I can’t think of a better endorsement of a product than my wife’s complete switch after years of using her old product. When our friend first suggested Eucerin, I remembered that I had used Eucerin for my Eczema skin condition. It then dawned on me that I use Nivea shaving cream, which is also a Beiersdorf product.
Other Beiersdorf brands include La Prairie, Labello, Coppertone and many more.
So far, in 2020, Beiersdorf stock has a total loss of 3.3%, a little worse than its peers in the household and personal products industry. But its performance is much better than the 6.8% total loss of the German market over the same period.
Ironically, Beiersdorf bought Coppertone in May 2019 from Bayer (OTCMKTS:BAYRY), another large German company. Paying $550 million for the suncare brand, Coppertone became the company’s fifth skincare brand in North America.
Patient investors will be rewarded in the long term by BDRFY stock.
Wharf Holdings (WARFY)
We’re on to our fourth continent with a Hong Kong holding company that’s recently been involved in a large privatization plan by its controlling shareholder, billionaire Peter Woo.
On June 16, shareholders of Wheelock and Company (OTCMKTS:WHLKY) voted in favor of Woo’s privatization plan. The move ends Wheelock’s 57 years as a public company. If you haven’t heard of Wheelock, it’s one of Hong Kong’s largest real estate developers.
The $16 billion take-private deal was done because Wheelock stock had lost 25% of its value over the past three years. It will do better out of the eyes of watchful investors.
As a result of the privatization, the Woo family will own 100% of Wheelock and Company, which in turn will own 48.8% of Wharf Holdings and its sister company, Wharf REIC. Wharf REIC trades on the Hong Kong Stock Exchange.
Wharf Holdings was in the news in North America in May when it announced that it had sold close to $1 billion in Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) stock as part of Wheelock’s privatization plan.
Boy, it’s an interesting company structure. Wharf owns Hong Kong real estate, development and investment properties in mainland China, 17 hotels in Asia and 68% of Modern Terminals, an operator of container terminal services in South China.
In 2019, Wharf’s revenues and profits declined by 20% and 10%, respectively. However, with $24 billion in undervalued assets, the upside is why Peter Woo restructured the Wheelock/Wharf relationship.
Long-term shareholders of Wharf ought to be rewarded. That includes Wheelock shareholders, who got Wharf and Wharf REIC stock as part of the privatization.
Lojas Renner (LRENY)
For the last stop on our five-continent tour of OTC stocks, we land in Brazil for the retail conglomerate that is Lojas Renner.
I know what you’re thinking. Retail is hopeless right now. Brazil has one of the worst Covid-19 situations anywhere in the world. Latin American currency and inflation volatility are off the charts.
How in the world is a Brazilian retailer a good investment? Sometimes in life, it pays to zig when others zag. Contrarian investing can be rewarding, but you have to be patient. Barron’s recently published a story that suggested investors were buying Latin American exchange-traded funds to take advantage of the region’s battered stocks.
Lojas Renner is one of those stocks. LRENY has lost 46% in 2020, about three times the loss of the Brazil markets. When you consider that Lojas Renner has a three-year annualized total return of 5.7%, before Covid-19, it was doing just fine by shareholders.
I realize it’s going to take retail a long time to return, but in whatever form it returns, Lojas Renner will be all over it.
On June 30, the company provided investors with an update on store reopenings. Of the company’s 597 total stores, 69%, or 412, had reopened.
There is no way to sugar-coat the fact that Lojas Renner’s Q1 2020 net income fell by 94% to $1.9 million from $29.9 million a year earlier.
However, it is the largest retailer in Brazil. Unless people there plan to go without clothes in the future, sales and profits will return.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.