Stocks listed on the main exchanges trade with higher liquidity as compared to OTC stocks. Further, main exchange stocks have higher visibility among investors. However, for investors willing to research and hold with patience, OTC stock offers immense value.
As I scan through some of the best OTC stocks, there seems to be no dearth of potential multi-bagger names. With several stocks trading under the radar, there is a meaningful valuation gap. I agree that the risk is higher and the allocation towards small-cap OTC stocks should be restricted to 5% or 10% of the portfolio.
However, even a small allocation can do wonders for the portfolio if few names deliver 10-bagger returns. The OTC stocks discussed in this column have that potential over a time horizon of five years.
Let’s discuss the reasons to be bullish on these OTC stocks.
Aker Carbon Capture (AKCCF)
Aker Carbon Capture (OTCMKTS:AKCCF) stock has declined by almost 50% in the last 12 months. The stock seems massively undervalued after the correction and is worth accumulating. Further, considering the business prospects, I believe that AKCCF stock is poised for 10x returns in the next five years.
As an overview, Aker Carbon is a pure play in the supply of modular and configurable capture plants. Given the global focus on reducing carbon footprint, Aker Carbon has a big addressable market.
Aker Carbon already has several contracts with instillation underway. For the remainder of 2023 (as of Q2 2023), the company reported a backlog of 3.3 billion Norwegian kroner. Further, the current backlog beyond the year stands at 2.3 billion Norwegian kroner.
Of course, the company is still at an early stage of growth. However, the plans are ambitious with the company targeting to secure projects to capture 10 million tonnes of CO2 per annum by 2025. As the order book gains further traction, I expect AKCCF stock to skyrocket.
Curaleaf Holdings (CURLF)
Curaleaf Holdings (OTCMKTS:CURLF) stock is another name among OTC stocks that have corrected by 50% in the last 12 months. I am however bullish on this cannabis stock for multiple reasons.
First, even without federal-level legalization, U.S. cannabis sale is expected to swell to $71 billion by 2030. Recently, Maryland reported $87 million in cannabis sales during the first month of recreational sales. This is an indication of the impending potential. With Curaleaf present in 19 states, there is ample headroom for growth.
It’s also worth noting that Curaleaf has been reporting steady sales growth coupled with a healthy EBITDA margin. For Q2 2023, the company reported free cash flow of $8 million. With operating leverage, the company’s FCF is likely to swell further.
Curaleaf has also been investing heavily in research and development. Last year, the company launched 171 new products. Investment in R&D will continue to drive growth and support margin expansion.
Avance Gas Holding (AVACF)
Avance Gas (OTCMKTS:AVACF) stock has trended higher by 55% in the last 12 months. The stock however looks deeply undervalued at a forward price-earnings ratio of 7.4. Additionally, AVACF stock offers a dividend yield of 14.46% and I believe that dividends are sustainable. In terms of total returns, a 10x upside seems possible in the next five years.
As an overview, Avance Gas is engaged in the transportation of liquefied petroleum gas. The company’s very large gas carriers have benefited from robust time charter rates. For Q1 2023, Avance reported a time charter rate of $58,379 per day. For the same period, the company’s daily operating expense was $8,626. This has translated into robust EBITDA margins and cash flows.
From a credit perspective, Avance reported a healthy cash buffer of $220 million. Further, the loan-to-value as of Q1 2023 was 55%. This provides the company with the flexibility to continue investing in new carriers. Revenue growth, healthy cash flows, and positive industry tailwinds (strong Asian demand) are the positive catalysts for AVACF stock.
On the date of publication, Faisal Humayun 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.
