What are pink sheet stocks? Many of you may remember hearing it in The Wolf of Wall Street. Jordan Belfort AKA Leonardo DiCaprio made millions of dollars selling pink sheet stocks to ignorant clients in the US. Is there anything valuable to know for today’s investors? Let’s find out.
Pink sheet stocks are not listed on major US stock exchanges. Instead, they are listed on the Over-the-Counter (OTC) market.
The name comes from the color of the paper the quotes used to be printed on. Pink sheets are now traded electronically.
Most companies are penny stocks. In fact, many are listed below $5. The OTC operates three tiers of markets.
- The OTCQX gets a qualitative review by the OTC group
- The OTCQB requires the stocks listed to have a minimum value of 1 penny and to do an annual certification that the information is up to date.
- For the Pink Sheets, there are no rules.
Pink sheet transactions require a broker. There is usually less volume and fewer buyers and sellers on the platform. Hence, it can take a longer time for orders to fill. Many foreign companies choose to list on this exchange to avoid disclosing financial and accounting information. Let’s take a look at a few pros and cons for investors wishing to buy these stocks and for companies wishing to list on this exchange.
Pros
Investors can see pink sheet stocks with the same eye as the Kickstarter platform. Some companies list there to gather funds for their company.
It is an easy way to attract new investments and increase the capital of the company. Those who can’t afford the hefty fees to join the NYSE or NASDAQ, opt for pink sheets.
It can be a good opportunity as well for investors who are seeking a high-risk high-reward opportunity. Pink sheet stocks have a high potential for growth and investors can benefit if they invest smartly. The majority of stocks are below $5 or even $1, making them very attractive to investors.
Cons
Going back to the Kickstarter comparison, many companies can be there also for the wrong reasons. There have been instances of fraudulent or shell companies operating on the pink sheets.
Since the information available is limited or even erroneous, investors may not always know what they are investing in. Some companies failed to meet the standards to list on the NYSE or NASDAQ and opted for a far less regulated platform.
Just like it can be an easy growth opportunity, it can also be an easy wipeout. In order not to lose all your money on the platform, having an experienced broker is essential.
The buy/sell spreads can be larger than on a standard exchange. It may be difficult to find the correct price to buy and sell the stock. Furthermore, a lot of additional fees can be incurred.
Investing in pink sheet stocks is not an easy order of business. Only experienced traders should venture on this platform with the help of a good broker. Even so, it should be with a small percentage of the portfolio. In my opinion for this situation, the cons outweigh the pros.
Should You Invest in Pink Sheet Stocks?
First, before entering a new market like pink sheet stocks, investors should practice. Whether it is for the US, Canadian, British, European, or any stock exchange, it is better to get familiarized with it first.
Before tackling real funds, investors should practice with a ghost account. TD Ameritrade, Fidelity, Schwab, Interactive Brokers, and other platforms offer pink sheet trading.
If an investor finds a company that meets all the guidelines below, then it can be a good investment opportunity.
- A suitable broker that doesn’t overcharge and is knowledgeable in pink sheet stocks
- Stocks that aren’t fraudulent, shell companies and have a legitimate growing opportunity
- Truthful information on the company and regularly updated
Stocks Listed on the Pink Sheets
In the following section, we will take a look at 3 examples of legitimate pink sheets stocks. These aren’t some pump and dump bag holding stock. But actual companies you’ve heard of before.
As a result, these are companies you can trust to trade. Even though they’re pink sheet stocks.
Nestlé (OTCMKTS: NSRGY)
We begin this section with the (evil) Swiss multinational company Nestlé. They are the biggest food and beverage in the world. I feel like Nestlé belongs on the pink sheet stocks list.
They are a shady company. We often hear the name Nestlé next to water pollution and monopoly, unethical standards, mislabelling, and other negative labels.
Today, Nestlé owns Perrier, San Pellegrino, Cheerios, Nesquik, Aero, KitKat, Milkybar, Nescafé, Nesquik, Nestea, Haagen-Dazs, Purina, Cat Chow, Dog Chow, and other international foods and beverages.
We might not notice it, but a lot of our consumption is Nestlé-based. Less than 2% of sales are in Switzerland. Their strategy is simple. Build and acquire brand names that resonate with families worldwide…and achieve this no matter the human and environmental cost.
Despite all this negativity, Nestlé’s products do taste good. Furthermore, they are profitable. The brand does resonate with families worldwide. Investors don’t care how the company looks to the few people who care.
As long as the company generates profits and beats expectations, investors will be happy. The current stock price isn’t too far from the all-time high set in January 2022. On paper, Nestlé is a good investment on paper, but is it good for our collective future?
Tencent Holdings (OTCMKTS: TECHY)
Next on our pink sheet stocks list is $TECHY. Tencent is a Chinese company. It’s one of the world’s biggest companies by market cap and is currently worth more than Tesla.
Tencent does business in many industries. They are currently the largest video game company in the world.
Tencent owns China’s most popular social media company, WeChat. They have a stake in many worldwide video game developers such as Riot Games (100%). Tencent also reached agreements with North American sports associations and music companies to stream their products in China.
Tencent also has a hand in AI, e-commerce, payments, banks, smartphones, and a multitude of other platforms.
This can be a good investment as the stock took a hit due to the pandemic. China’s COVID recovery hasn’t been as good as the rest of the world’s. A post-pandemic economic recovery is only a few months away.
Bayer (OCTMKTS: BAYRY)
Finally, Bayer is a German pharmaceutical and life sciences company. They are one of the biggest of their kind. Bayer also operates in agricultural chemicals, seeds, and biotech.
Two of their major products include Aspirin and Heroin. Bayer scientists invented Aspirin. They also helped to commercialize Heroin for various treatments. It also played a controversial role during WW1 and 2 along with its parent companies.
Their history is plagued with unethical decisions. In 2016, they acquired Monsanto, which isn’t the world’s cleanest company. Nonetheless, they have helped with numerous treatments. Just like Nestlé and Tencent, Bayer is a good investment on paper. However, its footprint on the world isn’t as positive.
None of the 3 companies above have the cleanest track records in the game. They are all multinational companies but choose to hide in the pink sheets.
Conclusion
To conclude, pink sheet stocks offer investors a new world of investments. I don’t want to use the word sketchy, but they aren’t the safest way to make a buck. Even the firms with an international footprint aren’t the best social investment. For those who choose to invest in the pink sheets, use caution and try to do the best due diligence possible.
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