OTC stocks often go unnoticed as there is an ocean of ideas to research and buy from the main exchanges. That’s understandable also because liquidity is higher in the main exchanges as compared to the OTC exchange. At the same time, OTC stocks, in general, have a relatively high beta.
I would however not completely ignore OTC stocks. There are some fundamentally strong businesses that trade in the OTC exchange and are not in the limelight. This column focuses on the overlooked OTC stocks that can deliver multibagger returns in the next 24 months.
As a basic screener, I have looked at OTC stocks that represent companies with a steady growth outlook and potential for upside in cash flows. Ultimately, it’s the free cash flows that determine the valuations.
Let’s look at the reasons that make these OTC stocks potential money spinners in the medium term.
Curaleaf Holdings (CURLF)
Curaleaf Holdings (OTCMKTS:CURLF) is among the OTC stocks to buy and hold for multibagger returns. The cannabis operator in the U.S. and Europe seems to be poised for robust growth in the next few years. There are two reasons to believe that CURLF stock will surge higher relatively soon.
First, being an election year, there is a possibility of some big news related to cannabis legalization. Recently, Vice President, Kamala Harrish urged the Drug Enforcement Administration to reschedule marijuana as a less-dangerous drug. Elsewhere, Germany has legalized cannabis and I expect other European countries to follow suit.
Further, Curaleaf reported muted revenue growth of 4% on a year-on-year basis for Q4 2023 to $345 million. However, with European expansion, the Company expects 2024 to be a catalyst year. As revenue growth accelerates, I expect CURLF stock to surge higher from undervalued levels. It’s worth noting that the Company is already reporting healthy EBITDA margin and positive cash flows from operations.
Aker BP ASA (AKRBF)
Aker BP ASA (OTCMKTS:AKRBF) is a quality oil and gas stock that can be a massive value creator. The Norwegian Continental Shelf focused Company has quality assets and a low oil price break-even. Besides trading at attractive valuations, AKRBF stock offers a robust dividend yield of 8.93%.
From an asset perspective, Aker BP reported 2P reserves of 1.72 billion BOE. Further, the average oil price break-even for the full portfolio stands at $35 to $40 per barrel. Therefore, the Company is positioned to deliver robust cash flows even with oil around $80 per barrel.
For 2023, Aker BP reported after-tax operating cash flow of $5.4 billion. With oil likely to trend higher and with steady production growth visibility, the Company is a cash flow machine. In 2023, Aker reported production of 457mboepd. Production is expected to increase to 525mboepd by 2028. Also, a leverage ratio of 0.19 ensures high financial flexibility for organic and acquisition driven growth.
Lundin Mining (LUNMF)
Lundin Mining (OTCMKTS:LUNMF) stock has rallied by 82% in the last 12 months. However, valuations remain attractive at a forward price-earnings ratio of 17.6. The stock also offers a healthy dividend yield of 2.66%.
It’s worth noting that multiple rate cuts are on the cards in the next 12 to 18 months. This is likely to benefit industrial commodities and precious metals. This is one reason to be bullish on Lundin, which is a diversified base metal mining company.
For 2023, Lundin reported adjusted EBITDA and free cash flow of $1.4 billion and $345 million respectively. I believe that free cash flows will continue to swell with 75% of Q4 2023 revenue from copper, which recently hit a 11-month high.
I must add here that Lundin has high financial flexibility with a low leverage of 0.7x. Further, a liquidity headroom of $1.5 billion allows for aggressive investment in exploration and potential acquisitions.
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 Guidelines.
