In general, investors focus on large-cap stocks or growth stocks that are listed on main exchanges. However, there are high-quality stocks to buy from the ocean of stocks listed in the over-the-counter market. I believe that it’s a good idea to buy and hold some of the best OTC stocks.
The key difference between regular exchanges and the OTC market is that securities are traded in the latter directly between counter-parties. The OTC market has U.S. stocks as well as stocks from global markets.
There can be a globally diversified sub-portfolio of best OTC stocks. It’s also a myth that only speculative or small-cap stocks are listed on the OTC exchange. Some major global companies are traded in the over-the-counter market.
The recent market meltdown has provided an attractive entry opportunity. Let’s talk about seven best OTC stock that are worth considering at current levels.
|Aker Carbon Capture
I remain bullish on the energy sector for the long-term and Lundin Energy (OTCMKTS:LNDNF) is among the best OTC stocks. As an overview, Lundin is an oil and gas exploration company with focus on the Norwegian Continental Shelf.
With the announced merger agreement with Aker BP (OTCMKTS:DETNF), the company is positioned for long-term value creation. One reason to like Lundin is the fact that the company has low break-even assets.
For 2021, Lundin reported $1.6 billion in free cash flows. The company also reduced debt by $2.7 billion last year. With the potential merger and higher oil price, free cash flows will swell further. For the combined entity, the production guidance is 400,000boepd for 2022. Further, production is expected to increase to 525,000boepd by 2028.
This guidance is achievable considering the point that Lundin Energy has 2.7 billion barrels in reserves and resources. With positive FCF, financial flexibility will remain strong and allow the company to make aggressive investments. Overall, investors are positioned to benefit from stock upside and dividend growth.
Aker Carbon Capture
Aker Carbon Capture (OTCQX:AKCCF) is another interesting name among OTC stocks. The company is in the business of providing products and solutions in the field of carbon capture.
Aker Carbon was recently in news with the company collaborating with Microsoft (NASDAQ:MSFT) for scaling the carbon capture value chain. The partnership will explore opportunities in the carbon capture utilization and storage market.
For Q1 2022, Aker Carbon reported 127% revenue growth on a year-on-year basis. For the same period, the company reported cash burn. However, with the business still at an early stage, cash burn is not a concern.
It’s also worth noting that the company has an order backlog of 1.8 billion Norwegian Krone as of Q1 2022. This provides clear revenue visibility for 2022 and 2023. With multiple strategic partnerships, it’s likely that the backlog will continue to swell.
Overall, Aker Carbon is in a high-growth business segment. With global focus on the environment, carbon capture technology and services will continue to gain traction.
Avance Gas (OTCMKTS:AVACF) is in the business of transportation of liquified petroleum gas using very large gas carriers (VLGC).
As of Q1 2022, the company has a fleet of 13 VLGCs. Additionally, the company has four VLGC on order that are scheduled for delivery through 2023. This provides growth visibility.
A key reason to like Avance Gas is favorable industry dynamics. For Q1 2022, the company reported day-rate of $37,608 as compared to $27,631 in Q4 2021. With U.S. shale boom having boosted VLGC exports, the day-rate outlook seems positive.
Additionally, a large number of VLGC fleet are retirement candidates. This is likely to keep the demand-supply scenario tight. With a young fleet, Avance Gas is well positioned.
It’s also worth noting that the company reported operating cash flow of $38.9 million for Q1 2022. If cash flows remain healthy, Avance is positioned to sustain dividends.
AVACF stock has trended higher by 25% in the last six-months. Considering challenging broad market conditions, returns have been robust. I expect the upside to sustain in the coming quarters.
Considering the headwinds of higher fuel price and a potential recession, airline stocks have declined. However, the correction presents a good accumulation opportunity in quality stocks.
Air Canada (OTCQX:ACDVF) stock has corrected by almost 28% in the last one-month. At current levels of $12.6, the stock seems attractive for medium to long-term exposure.
As of Q1 2022, Air Canada reported $9.2 billion in liquidity buffer. A strong cash position will help the company navigate the challenging quarters. The company also generated positive cash flows from operation in Q1 2022.
I also like the fact that Air Canada has continued to expand. Even amidst multiple headwinds in the last 24 months. Besides existing routes being restored to pre-pandemic levels, the company also plans seven new routes in North America.
Additionally, the company has 30 aircraft on order. This provides growth visibility for the next few years. Air Canada has also been delivering results in terms of cost control. In 2021, the company reported $160 million in operation expense reduction. This was in a scenario where fuel price increased by 20%.
Cannabis stocks have been on a decline with delay in Federal level legalization. However, the correction seems overdone and there is value in several cannabis stocks. Curaleaf Holdings (OTCMKTS:CURLF) is among the best OTC stocks from the sector. After having slipped by 42% in the last six-months, the stock looks attractive.
Curaleaf is currently present in 22 states in the U.S. besides international presence eight European countries and Israel. For Q1 2022, the company reported revenue and adjusted EBITDA growth of 20% and 16% respectively.
With a strong liquidity position ($243 million in cash and equivalents), aggressive growth is likely to sustain. Curaleaf also has significant investment in research and development. This is already delivering results. For Q1 2022, the company generated 17% of revenue from new products launched in the last 12-months.
It’s also worth noting that the company has presence in the recreational and wellness segment. This boosts the total addressable market. With expanding European presence, healthy growth is likely to sustain.
Tencent Holdings (OTCMKTS: TCEHY) is a high-quality name among OTC stocks. I believe that TCEHY stock is worth considering for the long-term portfolio.
After a correction of 21% for year-to-date 2022, the stock provides an attractive entry opportunity. My point is underscored by the fact the TCEHY stock trades at a forward P/E of 13.9.
The holding company has presence in social network, gaming and advertising. For Q1 2022, the company reported stable revenue. However, operating margin contracted by 460 basis points. The company still reported free cash flow of 15.2 billion renminbi for the quarter.
With a strong balance sheet, Tencent is positioned to invest in innovation. For Q1 2022, the company reported an investment of 15.4 billion renminbi in research and development.
As R&D expense accelerate, growth is likely to gain traction. It’s also worth noting that presence in the cloud the financial technology business will ensure healthy long-term growth.
H2O Innovation (OTCQX:HEOFF) is an attractive small-cap name among OTC stocks. While the stock has been in a downtrend, the business developments remain positive. Once broad market sentiments reverse, HEOFF stock is poised for a reversal rally.
As an overview, the company is primarily engaged in integrated water treatment solutions. For Q3 2022, the company reported organic revenue growth of 15.3% on a year-on-year basis. Further, with three acquisitions in the last 12-months, the company’s inorganic growth has also been robust.
Another point to note is that as of Q3 2022, H2O Innovation reported an order backlog of $108.9 million. The backlog provides near-term revenue visibility. Also, 83% of the company’s revenue was recurring. With more contracts in the coming years, recurring revenue is likely to boost key margins and cash flows.
With factors such as water scarcity, aging infrastructure and population growth, water remain a big investment theme. H2O seems well positioned to benefit in the coming years.
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.