Over the counter (OTC) stocks refer to securities transacted via a dealer network instead of on a centralized exchange such as the Nasdaq or New York Stock Exchange.
These exchanges have less severe financial-disclosure requirements and are also known as “pink sheets,” referring to the color of paper on which stock prices were printed before electronic trading took over.
Today, OTC stocks are enjoying a renaissance of sorts due to retail traders. Millennials pushed up so-called “meme stocks” due to the stimulus money and extra time these days. However, several OTC stocks are interesting plays on their own merits.
Plus, the enticement to initiate a position will always be there due to the low stock prices. But these companies have an attractive business model along with an attractive valuation.
Read on and get to find out what sets these OTC stocks apart:
OTC Stocks: Sberbank of Russia (SBRCY)
Our first entry in this list of OTC stocks could 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 fundamentals for the bank are excellent. Net margin stands at 34.4% and the return on equity at 17.9%, as of this writing.
The Moscow-based banking giant is the largest bank in Russia, central Europe and eastern Europe. At a market cap of $157.6 billion, the full-service bank holds more assets than the next six largest competitors combined with 31,254.4 Russian rubles at the end of December.
Considering Sberbank is a state-owned banking company, it’s a classic “too big to fail” case study. Hence, you can rest easy that the bank will not go belly up. However, some investors may feel uneasy pouring their capital into a Russian company. U.S. President Joe Biden has made no bones about his opinion of Russian President Vladimir Putin and his administration.
His aggressive approach to the country will likely have a bearing on your decision to invest in this one. But on pure fundamentals, this is one of the safer stocks out there. Shares are trading at a price-earnings ratio of 8.4x.
Softbank (SFTBY)
Another excellent stock that doesn’t get a lot of love is the Japanese multinational conglomerate holding company SoftBank. The company is most famous for bankrolling a fledgling Alibaba (NYSE:BABA) with $20 million in 2000. It turned out to be one of the most successful investments ever made.
Nevertheless, the company has several excellent positions in high-growth technology, energy, and financial companies apart from Alibaba as well. However, the Japanese conglomerate focuses largely on internet- and e-commerce-focused early-stage investments.
Apart from all these investments, it is a general partner of the $100 billion Vision Fund and sole investor in Softbank Vision Fund 2, focusing mainly on pre-IPO internet companies.
Considering the nature of Softbank, you can rest easy knowing that your investment is well diversified. Although the dividend is not the main reason for investing in this one, Softbank has increased its payout consecutively in the last six years.
SFTBY has outperformed the S&P 500 by 150% and its sector by 127.3% in the past year. During the same period, the communication services sector has outperformed the market by 22.7%. That kind of growth is nothing to scoff at, especially during a pandemic.
OTC Stocks: Tencent (TCEHY)
Tencent is an excellent Chinese gaming and payments company that develops, manufactures, and markets internet-related products and services. The company’s business segments include social networking, communication, online PC and mobile games, and financial technology.
In the last year, sales and EPS have grown by 20.4% and 30.2%, respectively. The novel coronavirus pandemic has acted as a tailwind for its various business segments. Since its tech-focused, no surprise that it was a winner during these times of crisis.
Its video games division, in particular, has done extremely well. In its most recent quarter, Tencent reported year-over-year revenue growth of 45% in online games sales. Additionally, the Chinese multinational technology conglomerate owns WeChat Pay, a mobile payment and digital wallet service. It is a significant player in the $17 trillion Chinese mobile payment markets.
Overall, the company’s fundamentals are solid. The only thing going against the stock is that it’s based in China. Since assuming office, Biden has not softened his stance on China. Hence, companies like Tencent could face regulatory hurdles moving forward.
Other than that, there is hardly anything you will find wrong with this one.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.