Most companies choose to play by the rules, filing detailed financial statements, communicating with investors and generally adhering to a high set of principles. But it's quite simple to mislead and deceive investors: You merely avoid the New York Stock Exchange, the Nasdaq and the American Stock Exchange, and instead have your stock trade on the pink sheets. More than one-third of companies on the Pink Sheets don't even bother providing investors with any information, according to OTCmarkets.com.
Making matters worse, brokerage firms have a field day with these stocks, as they have very little competition when it comes time to offer a bid and ask price. The same stock can be sold to one investor at $5 a share and acquired from another investor at $3 a share. This kind of spread ensures huge profits for the broker/dealer and huge losses for you.
But in recent years, this low-rent corner of the market has been in some classy company. Major global corporations are putting their shares on the Pink Sheets, in large part to avoid the cumbersome paperwork required by the Securities and Exchange Commission (SEC). Fear not. These companies are subject to rigorous regulatory scrutiny back in their home markets and have little incentive to cheat investors.
What kind of companies are we talking about? How about Switzerland-based Nestle (Pink Sheets: NSRGY), the $200 billion (market value) confectionary giant? The stock has risen more than 75% in the last two years, though investors avoiding pink sheet stocks wouldn't have even known about the move. Here are three other pink sheet stocks you need to seriously consider if you want exposure to the most dynamic regions and industries around the globe...
1. Anglo American (Pink Sheets: AAUKY)
Market value: $60 billion
This U.K.-based mining giant has a hand in platinum, diamonds coal and iron. Outside of Pepsi Co. (NYSE:PEP), it is the largest company in the world with a woman (Cynthia Carroll) at the helm. Shares appear quite inexpensive, trading at less than seven times current profits.
2. China Construction Bank (Pink Sheets: CICHY)
Market Value: $202 billion
With the Chinese economy showing possible signs of cooling and the Chinese banking sector possibly on the hook for many bad loans, this stock may not be timely, but it remains the single best way to play the long-term China boom, from a financial services perspective. I'd sit on this one and wait to see how the situation plays out. You may find the stock to be a steal at just the right time and be able to ride the shares up.
3. Volkswagen (Pink Sheets: VLKAY)
Market Value: $17 billion
In addition to the namesake brand, this German firm also controls Audi, Lamborghini, Bentley and many others. On the heels of a newly-opened manufacturing plant in Chattanooga, TN, management aims to make VW as strong a brand in the United States as it is in Europe and South America, where it is the top-selling brand. The ultimate goal: to become the world's largest automaker, surpassing mighty Toyota.
Action to Take --> As more global firms take up home on the Pink Sheets, you'll have even more chances to invest in the global economy. To be sure, it's easier to get lots of information on companies such as Ford Motor Co. (NYSE:F) or GM (NYSE:GM) than it is on a firm like Volkswagen, but that shouldn't deter you from adding more international exposure to your portfolio. If you've got more than 80% of your assets parked in stocks of U.S. companies, then you're missing out on some of the most dynamic global opportunities that will emerge in the years ahead.
-- David Sterman
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.