Typically, when a company decides to list its equity units in the over-the-counter (OTC) market, it’s usually for a reason and not a good one. Unable to meet the regulatory requirements and fiscal performance standards of a major U.S. exchange, many firms seek listing on the pink sheets — a historical reference to the color of the paper where prices were recorded. But not all OTC stocks are shoddy affairs.
In fact, some of the world’s biggest and most well-recognized companies cannot be found in major exchanges like the New York Stock Exchange or the Nasdaq. Instead, they’re among the litany of highly risky OTC stocks. At first, the concept may be jarring for investing newcomers, like finding out that your favorite celebrity is living in the worst part of town.
While OTC stocks for the most part have a bad reputation that’s well earned in my opinion, facilitating pump-and-dump schemes are not the only reason why the pink sheets exist. To list in the major exchanges requires significant funds. Even if a company has a massive war chest, it may not be worth the cost for a major listing.
In addition, big OTC stocks tend to be shares of foreign companies. In that case, they may have additional reasons not to want a major listing. Primarily, it comes down to whether it’s worth it for the issuing company. If demand for shares among American investors isn’t that robust, these organizations can just get by with a pink sheet listing.
Cynically, big brands also know they have a huge advantage over the pink sheet competition. Namely, if an American investor is interested in buying shares because they’re already familiar with the underlying product or service, they can just look up whether their favorite foreign companies’ equity is available for trading. Here are some of the most intriguing names among OTC stocks to buy:
- Volkswagen (OTCMKTS:VWAGY)
- Daimler (OTCMKTS:DMLRY)
- Mitsubishi Heavy Industries (OTCMKTS:MHVYF)
- Kawasaki Heavy Industries (OTCMKTS:KWHIY)
- Nestle (OTCMKTS:NSRGY)
- Bayer (OTCMKTS:BAYRY)
- OTC Markets Group (OTCMKTS:OTCM)
Keep in mind that OTC stocks tend to have liquidity issues and therefore, the bid-ask spread may be much wider than a blue chip listed on the NYSE. But if you’re willing to deal with some of the nuances of the pink sheets, these companies with big profiles can deliver surprisingly robust returns.
As evidence that not all OTC stocks to buy are speculative trash, I present to you Volkswagen. One of the most recognized automotive brand names, the beauty of VWAGY stock is that it’s tied to other brands thanks to the underlying company’s massive corporate umbrella.
From luxury automakers like Audi and Porsche to exotic car manufacturers Bugatti and Lamborghini, Volkswagen is basically the king of four-wheeled desirability.
And before I get yelled at, Volkswagen also owns Ducati, which is famous for its high-performance motorcycles. So, if it goes fast, chances are, Volkswagen owns it.
Of course, VWAGY stock is making news because the issuing company presents viable competition for electric vehicle manufacturers. Rivals entering the space, such as Churchill Capital Corp IV (NYSE:CCIV) target Lucid Motors, are attracted to the premium end. After all, EVs are expensive, and marketing upper-tier customers makes the most sense.
But if you’re Volkswagen, you have the resources and the economy of scale to bring EVs to the common person. Further, its investments toward solid-state batteries may pay off one day, making VWAGY potentially one of the most undervalued OTC stocks to buy.
I drive a Mercedes-Benz, so I’m extremely biased with the inclusion of Daimler on this list of OTC stocks to buy. But bias or not, the performance of Daimler shares can’t be denied. On a year-to-date basis, DMLRY stock is up nearly 33%.
Plus, it’s moving in the right direction, which is not exactly what I can say for some EV competitors. Still, can Daimler compete in this increasingly competitive arena? I believe so.
First, Daimler’s flagship is developing its own take on EVs called Mercedes-EQ. Perhaps the nuanced meat of the platform is only discernable by engineering buffs. Nevertheless, the takeaway is that Mercedes is bringing a holistic approach to EVs, with electrification being incorporated not just in the powertrain but throughout the architecture of the vehicle. Please watch its videos to get a much better idea of the EQ innovation.
Second, Mercedes brings to the table a social cachet that other brands catering to the mass affluent can’t touch. This is where my bias comes into play but I believe Mercedes offers the right touch of exhilarating design and classic motifs. DMLRY stock is a dark horse to watch.
Mitsubishi Heavy Industries (MHVYF)
Back in October 2020, the AP reported that the Japanese government picked Mitsubishi Heavy Industries as the main contractor to develop the country’s homegrown next-generation stealth fighter. Scheduled for launch in the 2030s, the contract is significant for MHVYF stock because it may signal a complete rethink for Japan’s defense industry and for Mitsubishi as a viable investment.
Since the spring of 2013 when MHVYF stock hit its peak, shares have been trending down in a clearly defined bearish channel. However, it may have hit rock bottom in October of last year, coinciding with the stealth fighter contract. But can one contract make all the difference for an industrial powerhouse like Mitsubishi?
When you consider the geopolitical narrative, it’s very possible that MHVYF could be one of the more compelling OTC stocks to buy. In recent years, China has been flexing its military muscle, demanding acquiescence from its Asian neighbors. Well, Japan is the biggest capitalist stopgap in the region, making it vital that it has the means to effectively counter China’s aggression.
Further, the U.S. has proven to be an ineffective ally. Even with the Biden administration, the president appears too frail to handle the hot-button issues of the day. Thus, American allies have to be prepared to go at it alone, cynically bolstering the case for MHVYF as one of the OTC stocks to buy.
Kawasaki Heavy Industries (KWHIY)
For most Americans, Kawasaki Heavy Industries is synonymous with high-performance motorcycles such as the Ninja. Indeed, I thought of getting a Ninja myself before I decided that the risk of getting thrown off my bike wasn’t worth it. Notably, the company also makes off-road vehicles and jet skis — transportation methods that could do well as we gradually return to normal.
However, that’s not why I’m talking about KWHIY stock, as intriguing as that bullish thesis is. Rather, I’d like to explore Kawasaki’s lesser-known businesses, particularly its defense contracting work. As a shipbuilder for the Japan Coast Guard, Kawasaki is incredibly relevant for the present geopolitical climate. With China asserting its presence on the high seas and claiming territory left and right, the Japanese government needs to respond. Typically, it’s in the form of the JCG sending its cutters.
As well, Kawasaki is a renowned submarine manufacturer and sure enough, Japan has a formidable fleet of submarines. While it won’t go head-to-head with China, what it can do very effectively is impose anti-access/area denial or A2/AD. In the event of a hot conflict, Japan can stymie Chinese attacks, making its aggression economically untenable.
With tensions exploding in Taiwan, this isn’t an unrealistic scenario. Therefore, keep KWHIY on your list of OTC stocks to watch.
An American favorite, Swiss multinational food and beverage company Nestle sure seems like one of our own. Nevertheless, with such a massive footprint — indeed, Nestle is a favorite in a lot of countries — you’d think that NSRGY stock would have a listing on a major U.S. exchange.
Instead, the long and awkward ticker symbol is the dead giveaway — Nestle is humbly listed alongside some really crummy OTC stocks. But don’t let that detract you from NSRGY stock. Over the trailing month, shares are up 8% and it has been on a tear since late February. That’s not bad for what is usually a pedestrian investment.
Part of the catalyst could come from the gradual return to normal. Recently, the government released a very encouraging jobs report, which showed that total nonfarm payroll employment rose by 916,000. True, there’s much work to be done but at least the labor market is moving in the right direction.
With more folks getting their jobs back, that allows for additional spending on discretionary or premium items. Since we’re no longer in crisis mode, Nestle products represent a nice treat for consumers.
Food and beverages may be one thing. But you’d think that surely, one of the world’s largest pharmaceutical companies in the form of Bayer would be listed on the Nasdaq, if not the NYSE. I mean, we’re talking about Bayer here! And again, you’d be wrong.
This goes to show you that you should never judge a book by its cover. Or in this case, never assume a publicly traded company is crap because its listing neighbors are OTC stocks.
Another thing that’s peculiar: BAYRY stock hasn’t been performing that well since 2015. However, speculative investors may want to put Bayer on their radar because of two catalysts. First, the company is partnering with CureVac (NASDAQ:CVAC) to produce the latter’s messenger-RNA-based coronavirus vaccine. Specifically, Bayer plans to make 160 million doses in 2022, which should go a long way in stemming the long-term impact of Covid-19.
The other is that as the health crisis is fading in places like the U.S., Bayer has an opportunity to focus on its core pharmaceutical businesses. Plus, with so much negativity baked in, there’s a solid chance that BAYRY stock has already hit bottom.
OTC Markets Group (OTCM)
With all this talk about OTC stocks to buy, you may just want to consider procuring shares of the entire house. That’s right, the financial market that provides price and liquidity information for thousands of your favorite speculative investments is available as a publicly traded entity itself. While I’m sure OTC Markets Group won’t provide the rip-roaring upside that some names under its exchange have delivered, OTCM stock is nevertheless something to consider.
First, it’s the principle about selling tickets to the game rather than betting on one particular team. Sure, the pure profitability potential will be greater if you bet on the game. But by selling tickets, you’re assuring yourself of a payday. Of course, the analogy doesn’t quite work 100% as OTCM stock, like any other investment, is subject to extreme volatility.
But this leads into my second point. If you haven’t noticed, OTC stocks are hot, thanks to the growing influence of social media. Once a speculative trade gets a following, it can take on a life of its own. By investing in OTCM, you’re betting that this trend continues.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.