Whether you’re a growth investor, a value investor, or something in-between, the over-the-counter (or OTC) market is a great place to look for opportunities. Even though many carry higher risk, there are scores of OTC stocks with high potential.
OTC stocks, which trade in a decentralized market without a central exchange, may be less liquid, more risky, and more under-the-radar than stocks trading on major exchanges. However, for small investors adept at position-sizing, this can work to your advantage. In the OTC markets, there are plenty of deep value stocks, trading at a very low multiple compared to their better-known peers. Over time, many of these stocks can deliver significant gains, either from company-specific catalysts, or from simply the market discovering them, resulting in a re-rating.
There are also many growth stocks that trade over the counter. Some of these names have massive growth potential, and can produce big returns as that potential is realized. Out of thousands of over-the-counter equities, here are seven OTC stocks with high potential. A mix of value and growth plays, each one offers a favorable risk/return proposition.
Butler National (BUKS)
Butler National (OTCMKTS:BUKS) is a name I’ve discussed numerous times in past coverage of both OTC stocks and penny stocks. The main appeal with this aerospace and casino gaming company is its low valuation compared to peers.
At the moment, BUKS stock trades for 9.2 times trailing twelve month (or TTM) earnings. Few aerospace or casino stocks trade at such a low multiple. This implies that the company’s breakup value is likely well above its current valuation. Admittedly, this high potential doesn’t mean much, if management doesn’t take steps to realize it.
However, while the company has yet to make any big divestiture/spinoff announcements, the likelihood of one could be rising. In May, longtime CEO Clark Stewart resigned, with Christopher Reedy (previously COO) taking the helm. BUKS stock rallied on this news, perhaps due to investors speculating that Reedy will take more active steps to maximize shareholder value.
Crawford United (CRAWA)
Not all OTC stocks are penny stocks. Crawford United (OTCMKTS:CRAWA) is one such exception. CRAWA trades for around $25 per share, yet while not low-priced like BUKS (which trades for under $1 per share), this Cleveland, Ohio-based industrial holding company is also a great deep value opportunity.
That said, the potential with CRAWA stock goes beyond just the fact that it trades for less than ten times TTM earnings. Crawford, which specializes in acquiring and growing small manufacturing companies, has great potential to become a long-term compounder.
Since beginning to implement this “buy and grow” strategy in the 2010s, CRAWA stock is up a staggering 1,289%, and this could be just the start. For instance, Danaher (NYSE:DHR) scaled into a large-cap enterprise by employing a similar playbook. Taking all of this into account, it’s clear that CRAWA is one of the OTC stocks with high potential.
Elite Pharmaceuticals (ELTP)
Elite Pharmaceuticals (OTCMKTS:ELTP) may not look like one of the promising OTC stocks. Dirt cheap with a price-to-earnings (or P/E) ratio of just 8.25, this tiny pharma firm, whose shares have tumbled by more than 35% in the past year, and are down more than 63% over the past five years, may seem like little more than a value trap. But while ELTP stock has performed poorly, things may be on the verge of turning a corner. Back in April, the company made a major announcement. That month, Elite filed an abbreviated new drug application (or ANDA) for a generic antimetabolite drug.
The press release announcing this news implies that this treatment, if it obtains full Food and Drug Administration (or FDA) approval, could produce tens of millions in additional annual revenue. Not bad, considering that Elite currently generates around $32.2 million in annual sales.
Exro Technologies (EXROF)
Exro Technologies (OTCMKTS:EXROF) is one of the OTC stocks with growth potential. Based in Canada, the company develops and commercializes power electronics used in both electric vehicles (or EVs) and battery systems. With big exposure to the EV megatrend, it’s no shock that EXROF stock went on a heater during the EV stock bubble of late 2020 and early 2021. Since then, however, shares have tumbled from prices above $5 per share, to around $1.60 per share today. So, after this big plunge, why make Exro a buy?
Despite the poor performance of the stock over the past two years, the company keeps charging ahead. With multiple partnerships in place with manufacturers, Exro Technologies is only starting to enter the revenue stage. With a market cap of just $268 million, it may not take much commercialization success to justify a rebound for this stock.
MariMed (OTCMKTS:MRMD) is another of the OTC stocks with high potential that I have talked about in recent months. An integrated cannabis company operating in multiple U.S. states, MRMD stands out among names in this still-emerging sector.
Why? In large part, because the company would likely be an ideal acquisition candidate, in the event that cannabis is fully legalized on the U.S. federal level. Besides having a wide footprint, MariMed is also consistently profitable. That said, takeover potential isn’t the only thing that makes this one of the OTC stocks with high potential.
Even if federal legalization efforts continued to be delayed, MRMD stock could still make its way to higher prices. Although profitability has recently declined, further expansion efforts could help make up the difference, and then some. Besides opening and acquiring new dispensaries, MariMed is also at work expanding its product offerings.
NewLake Capital Partners (NLCP)
Like MRMD, NewLake Capital Partners (OTCMKTS:NLCP) is another OTC gem involved in the cannabis space. However, this company is not a cannabis producer, wholesaler, or retailer. Instead, this is a real estate investment trust (or REIT) that owns industrial space leased out to cannabis producers. Over the past year, cannabis REITs have experienced massive price declines. Mostly, due to rising concerns like rising vacancy rates, tenant non-payments, which many worry could worsen as the economic slowdown continues.
However, while these issues have had a negative impact on this REIT’s fiscal performance, the “worst case scenario” may already be priced-in. NLCP stock trades for a low multiple (7.4) of its funds from operation (a metric commonly used to assess REIT profitability). Big declines also mean that NLCP is now one of the high yield OTC stocks. NewLake currently has a forward dividend yield of 12.1%.
POSaBIT Systems (POSAF)
As I put it back in April, POSaBIT (OTCMKTS:POSAF) is a “cannabis adjacent” stock. This fintech firm provides payment services to U.S. state-licensed dispensaries. As long as federal laws on cannabis remain unchanged, companies like this one have this market to themselves.
With this, one can argue that, rather than a legalization play, POSAF stock instead is a wager that U.S. federal legalization never arrives, enabling this small company to become a leader in this niche. Although shares have moved slightly lower in the past year, there may be the potential for bullishness about this stock to pick back up.
After experiencing strong growth during 2022, POSaBIT has reached profitability. Through both additional organic growth, as well as through acquisitions (such as its recent deal for competitor Hypur), the company could “level up” on its recent success, with shares continuing to climb in tandem with earnings growth.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.