When the novel coronavirus pandemic struck, investors took shelter in the big-ticket S&P 500 names. After an initial blip, big tech giants started to ascend the markets once again and are now trading close to or above pre-pandemic levels. But savvy investors are looking into other options to park their capital, which are less expensive than the FAANGs, but present excellent growth stories. If you’re that kind of investor and are looking for OTC stocks to buy, this is the list for you.
Traditionally, over-the-counter stocks haven’t gotten a lot of love because of their inherent risk. Although not listed on the Nasdaq or the New York Stock Exchange, these stocks still offer excellent value with unlimited upside potential.
The total combined 2019 dollar volume on the OTCQX and OTCQB Markets stands at $82.745 billion. The number of securities on OTC Markets as of December 31, 2019, increased to 10,755 securities from 10,465 in the year-ago period. So, there is certainly a lot to chose from. I’ve narrowed it down to four top OTC stocks to buy:
- Tencent Holdings (OTCMKTS:TCEHY)
- Afterpay (OTCMKTS:AFTPY)
- Farmers & Merchants Bancorp (OTCQX:FMCB)
- Teranga Gold Corporation (OTCQX:TGCDF)
OTC Stocks to Buy: Tencent Holdings (TCEHY)
Among OTC stocks to buy, perhaps the most famous is Tencent Holdings. The Chinese multinational technology conglomerate is probably the most diversified enterprise in the world. It has interests in entertainment, artificial intelligence and various other internet-related services and products.
Traditionally, Tencent has made money through online games and advertising. Recently though, contributions are coming heavily from fintech and business services. That segment houses WeChat Pay and Tencent Cloud, which is the second-largest Chinese cloud service provider, behind Alibaba (NYSE:BABA).
TCEHY stock trades at a steep discount to its 52-week high of $72.95 per share. Shares are also going for 37.63 times forward price-to-earnings. That’s high but reasonable considering the valuations at which Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) are trading.
You can chalk that up to uncertainty surrounding U.S.-China trade relations and the abundance of fraud in the Chinese markets, such as in the case of Luckin Coffee (OTCMKTS:LKNCY). But Tencent is a stable company. You can invest in this one and be confident you’re not getting burned.
One of the most exciting stocks on this list is Afterpay. Effectively the leader in the Buy Now, Pay Later space, the company focuses on a unique business model that allows a consumer to pay for goods and services upfront if they don’t have cash. Later, the consumer has to pay back the amount in four equal installments without any interest. The only charge is a potential late fee.
With this model, AFTPY dominates the Australian and New Zealand market and is slowly making inroads into the U.S. and Europe. Paypal (NASDAQ:PYPL) is likely to be the most significant source of competition in the future, but it doesn’t have a rival product at the moment. This gives the company plenty of opportunities to gain market share in the interim.
From a valuation perspective, AFTPY stock trades at 22.85 times forward P/E, expensive but cheaper than Mastercard (NYSE:MA), Visa (NYSE:V), and Paypal. Shares already trade at a discount to their 52-week high, but I would wait for the stock to lose a bit more steam before buying in.
Farmers & Merchants Bancorp (FMCB)
The lack of interest in Farmers & Merchants Bancorp seems surprising. Maybe its because it’s a small-cap company that has just twenty-five branches across the Central Valley and East Bay. At the moment, any stock that is not Facebook, Amazon, Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) or Alphabet doesn’t seem to get a lot of love.
But still, one should always value stability, and FMCB is a robust, albeit less sexy option for your portfolio. A conservatively managed bank, it managed to continue rewarding shareholders through economic downturns, and most recently, a pandemic.
The only thing going against FMCB stock is its low trading volumes. That is no fault of its own because OTC stocks are not known to set the house on fire in terms of trading volumes. If you are into day trading, then maybe FMCB stock won’t interest you that much. But if you are looking for a solid investment with a healthy 2.86% dividend yield, then look no further. Go long with FMCB stock.
Teranga Gold Corporation (TGCDF)
We are finishing off this list in style. TGCDF is an exciting gold stock that is up almost 100% year to date. Teranga Gold is fast becoming a major player in West Africa. It owns the Sabodala and Wahgnion gold mines in Senegal and Burkina Faso, respectively, with a 2020 production guidance of 345,000 to 355,000 ounces.
With low fuel costs acting as a catalyst for operations, Teranga is in a good place and can become a top African gold producer with the Massawa and Sabodala integration. Massawa is one of the best underdeveloped open-pit gold projects in the region. It was bought for $380 million in a cash and stock deal plus a gold price-linked contingent payment, adding up to $50 million to the final agreement. A hefty sum for Teranga, but it shows that the company is willing to go the extra mile for growth.
Geopolitical tensions surrounding Wahgnion in Burkina Faso are the only significant risk that you need to keep in mind. Apart from that, there isn’t anything to dislike in Teranga.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.