“Pink sheet” stocks have long had a bad reputation in the financial markets.
Typically, this term is associated with companies with little in way of assets, even less revenues, and absolutely no reason for a long-term investor to ever buy one for their portfolio.
But due to listing requirements of the major exchanges, there are a number of blue chip firms on the “pink sheets” such as Repsol (PINK: REPYY), the Spanish oil giant; Samsung (PINK: SSNLF) from Korea, the world’s largest high tech company; Switzerland’s Nestlé (PINK: NSRGY), the world’s largest food and beverage entity; and Volkswagen, (PINK: VLKAY), which sells more cars than any other auto maker around the globe from its headquarters in Wolfsburg, Germany.
What Being on the Pink Sheets Means
Being on the pink sheets (so called as that used to be the color of the paper listing the stocks) can oftentimes make these stocks difficult to buy. But that is where there is the opportunity for greater profits comes in and makes its presence known for those willing to outperform the others. Legendary investor Warren Buffett did very well in pink sheets as he realized the degree of difficulty was a huge asset for those willing to work harder.
Buffett would put in tremendous amounts of extra effort to get great deals on pink sheet stocks, spending hours in his car visiting the companies and tracking down the owners of the shares.
Investing in Pink Sheets Can Yield Huge Profits
That can still be done today, but in different ways. For pink sheet stocks, the volume is generally lighter. As an example, the average volume for Kraft Foods (NASDAQ: KRFT) is about three million shares. For Nestlé, which is about seven times bigger based on market capitalization, the average volume is only around 800,000 shares.
The less a stock is traded, the better chances there will be inefficient pricing in the shares. The more volume, the tighter the trading for any asset class. When there is less volume and wider spreads, that is what allows for profits. When stocks are efficiently priced, there is no margin for profit, after all.
Pink Sheet Companies Still Pay Dividends
Even with the smaller amounts of volume, pink sheet stocks offer all that the other blue chips do that are listed on the major exchanges. For those seeking income, Repsol pays a dividend of 3.23%. By comparison, ExxonMobil (NYSE: XOM), the world’s largest oil and gas company, has a dividend yield of 2.90%.
As many pink sheet companies are foreign, there is an opportunity to profit from growth abroad by buying these stocks. Volkswagen sells more motor vehicles than any other company. Nestlé is very strong in Africa. Samsung is the dominant force in Asia. If an individual believes that growth will come from emerging markets in the decades ahead, pink sheet stocks like those and others offer an ideal investment vehicle.
There are many excellent companies that are pink sheet stocks, many of which are market leaders. Many of these are headquartered abroad. Due to the vagaries of the pink sheet sector, there are tremendous opportunities for profit for those willing to master the group. As Emerson observed, “For the resolute and the determined, there is always time and opportunity.” Pink sheet stocks, in particular, prove that point!
What are your thoughts on investing in pink sheet stocks?
Jonathan Yates is a financial writer with degrees from Harvard, Johns Hopkins and Georgetown University Law Center. While much of his career was spent working for Members of Congress on Capitol Hill, he was also General Counsel for a publicly traded corporation; and worked in the research department of a brokerage house.