In general, investor focus is on stocks listed on the main exchanges. This makes sense considering the liquidity on these exchanges and a sea of stocks to research and invest in. However, I would not completely ignore OTC stocks. There are dozens of OTC stocks with solid fundamentals that are worth considering for the long term.
An important point to note is that a lot of OTC stocks are under-the-radar. Stocks that are already in the limelight have fair valuation or are overvalued. Therefore, there is a high probability of finding stocks that trade at a valuation gap in the OTC exchange.
It’s also worth noting that the outlook for the S&P 500 index is positive for the coming year. A potential bull market will be a catalyst for a broad-based rally and undervalued OTC stocks are likely to surge.
This column discusses three OTC stocks that represent quality businesses. I believe that these stocks can deliver multibagger returns over a time horizon of 24 to 36 months. Let’s discuss the reasons to be bullish.
Aker BP ASA (AKRBF)
Aker BP ASA (OTCMKTS:AKRBF) stock is among the massively undervalued OTC stocks to buy. Besides the valuation gap, AKRBF stock offers an attractive dividend yield of 9.89%. Given the asset potential, I expect the stock to deliver multi-fold returns in the next few years.
As an overview, Aker BP is an oil & gas exploration company with focus on the Norwegian Continental Shelf. The Company has an investment grade balance sheet and that’s a big positive when considering an OTC listed stock. As of Q2 2023, the company reported leverage of 0.22. Further, Aker BP had a total liquidity buffer of $6.1 billion.
It’s also worth noting that at a realized oil price of $75 per barrel, Aker BP reported operating cash flow (before tax) of $2.9 billion. With oil trading at $90 per barrel, the company has strong cash flow visibility.
Further, with high financial flexibility, there is headroom to aggressively invest in exploration programs. Overall, I expect Aker BP to deliver healthy revenue and cash flow growth. This will translate into continued value creation.
Curaleaf Holdings (CURLF)
After a sustained downtrend, Curaleaf Holdings (OTCMKTS:CURLF) stock has surged by almost 50% over the last month. I expect the rally from deeply undervalued levels to sustain for this cannabis stock.
There are several reasons to like Curaleaf. First, the company reported revenue and EBITDA of $339 million and $70 million respectively for Q2 2023. EBITDA has been healthy and Curaleaf also reported positive free cash flow for the quarter. With operating leverage and product innovation, I expect further improvement in key margins.
Further, Curaleaf is investing heavily in research and development (R&D). Last year, the company launched 122 new products. The company has R&D collaborations with the likes of The Institute of Cancer Research and The Imperial College in London.
It’s worth noting that Curaleaf is present in 18 states in the U.S. Further, with expanding presence in Europe, the addressable market for recreational and medicinal cannabis is significant. If regulatory headwinds wane, CURLF stock can deliver multibagger returns in quick time.
Panasonic Holdings (PCRFY)
Panasonic Holdings (OTCMKTS:PCRFY) stock is among the blue-chip OTC stock to buy and hold. In the last 12 months, PCRFY stock has trended higher by 63%. However, the stock remains undervalued as indicated by a forward price-earnings ratio of 9.8. The stock also offers a dividend yield of 1.84%.
I believe that aggressive capacity expansion is a catalyst for growth and stock upside. To put things into perspective, Panasonic reported electric vehicle (EV) battery capacity of 50GWh in the last fiscal year ended March 2023. The company plans to boost capacity to 200GWh by 2031. This will translate into robust revenue growth and cash flow upside.
It’s worth noting that Panasonic is an innovator. By 2029, the company plans to produce solid-state batteries for drones and factory robots. The company also plans to increase EV battery density by 20% by 2030 along with an increase in the battery durability. Investment in research and development is likely to keep Panasonic ahead of the curve.
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.
