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Over-the-counter (OTC) stocks refer to securities that are traded through a network of dealers rather than on a central exchange like that Nasdaq or New York Stock Exchange.
These exchanges have less stringent financial disclosure requirements and are also known as “pink sheets,” which refers to the color of the paper on which stock prices were printed before electronic trading was adopted.
Today, OTC stocks are experiencing something of a renaissance because of retailers. Millennials these days have hyped so-called “meme stocks” because of the stimulus money and extra time. However, some OTC stocks are interesting plays in their own right.
Also, the temptation to take a position will always be there due to the low stock prices. But these companies have attractive business models and attractive valuations.
Read on to learn what sets these OTC stocks apart:
- Sberbank of Russia (OTCMKTS:SBRCY)
- soft bank (OTCMKTS:SFTBY)
- Tencent (OTCMKTS:TCEHY)
OTC Shares: Sberbank of Russia (SBRCY)
Source: Shutterstock
Our first entry in this list of OTC stocks might be considered controversial. The Central Bank of the Russian Federation owns more than 50% of the outstanding share capital of Sberbank of Russia.
Overall, the bank’s fundamentals are excellent. As of this writing, its net margin is 34.4% and its return on equity is 17.9%.
The Moscow-based banking giant is the largest bank in Russia, Central Europe and Eastern Europe. With a market cap of $157.6 billion, the universal bank held more assets than its next six largest competitors at 31,254.4 Russian rubles at the end of December.
Considering that Sberbank is a state-owned banking company, this is a classic too big to fail case study. So you can rest assured that the bank won’t buckle. However, some investors may feel uncomfortable putting their capital into a Russian company. US President Joe Biden has made no secret of his opinion of Russian President Vladimir Putin and his government.
His aggressive approach to the country will likely have an impact on your decision to invest in this country. But based on pure fundamentals, this is one of the safer stocks out there. Stocks are trading at a price-to-earnings ratio of 8.4.
Soft bank (SFTBY)
Source: Ned Snowman / Shutterstock.com
Another great stock that’s not getting much attention is Japanese multinational conglomerate holding company SoftBank. The company is best known for financing a fledgling Alibaba (NYSE:BABA) with $20 million in 2000. It turned out to be one of the most successful investments ever made.
Still, the company also has several excellent positions in high-growth technology, energy, and finance companies alongside Alibaba. However, the Japanese conglomerate is largely focused on internet- and e-commerce-centric early-stage investments.
Aside from all of those investments, it’s a general partner in the $100 billion Vision Fund and the sole investor in Softbank’s Vision Fund 2, which focuses primarily on pre-IPO internet companies.
Given the nature of Softbank, you can rest assured that your investment is well diversified. While the dividend isn’t the primary reason for investing in it, Softbank has steadily increased its payout over the past six years.
SFTBY surpassed that S&P500 up 150% and its industry up 127.3% over the past year. During the same period, the communications services sector has outperformed the market by 22.7%. That kind of growth isn’t to be scoffed at, especially during a pandemic.
OTC Stocks: Tencent (TCEHY)
Source: Tests / Shutterstock.com
Tencent is an award-winning Chinese gaming and payments company that develops, manufactures, and markets Internet-related products and services. The Company’s business segments include Social Networking, Communications, Online PC and Mobile Games, and Financial Technology.
Over the past year, revenue and EPS are up 20.4% and 30.2%, respectively. The novel coronavirus pandemic has given a tailwind to the various business areas. Given its technology focus, it’s no surprise that it’s been a winner during these times of crisis.
The video game division in particular has developed very well. Last quarter, Tencent reported 45% annual revenue growth in online game sales. Additionally, Chinese multinational technology conglomerate owns WeChat Pay, a mobile payments and digital wallet service. It is a significant player in the $17 trillion Chinese mobile payments markets.
Overall, the company’s fundamentals are solid. The only downside to the stock is that it’s based in China. Since taking office, Biden has not softened his stance on China. Therefore, companies like Tencent could face regulatory hurdles in the future.
Other than that, there’s very little you’ll find wrong with this one.
At the time of publication, Faizan Farooque held (neither directly nor indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing writer for InvestorPlace.com and numerous other financial sites. Faizan has several years of stock market analysis experience and was a former data writer at S&P Global Market Intelligence.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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