Investing in Pink Sheet Blue Chips

Written By Brian Hicks

Posted September 23, 2014

Every day, the big boys like UBS, Morgan Stanley, and Bank of America discourage you from buying some of the world’s best-performing stocks.

Many Wall Street brokers often refuse to sell shares of certain stocks to retail clients — even though they trade right here in America!

Yet over the past few years, this group of blue chip stocks has outperformed regular stocks by sizable margins. They represent the bluest of international blue chips — sterling companies like Rolls Royce and Nestle.

Not long ago, just about every international blue chip company in the world wanted its stock listed on the New York Stock Exchange or NASDAQ. Listing on the NYSE was the ultimate sign of quality, respect, and prestige.

But over the last few years, there has been an exodus of these global blue chips from America’s major exchanges. More than 110 prestigious foreign firms have delisted from the NYSE since 2007, including Germany’s Deutsche Telekom, Allianz, Lufthansa, Daimler AG, Volkswagen, and BMW, as well as Italy’s Gucci, the Swiss Swatch group, Mexico’s Telmex, Russia’s Gazprom, Spain’s Repsol, and France’s Hermes.

NASDAQ reports that 59 foreign firms have delisted over this period as well.

You may be surprised to learn that today, there is only one Singapore and five Swiss multinational companies listed on the NYSE or NASDAQ.

Why Are These Companies Fleeing the NYSE and NASDAQ?

There are two major reasons for this exodus. First, legislation passed by Congress, such as Sarbanes-Oxley, dramatically raised the costs and liabilities of listing international stocks on the NYSE or NASDAQ. Second, Wall Street’s focus on institutional business over retail investors like you meant it failed to fight this unfortunate trend.

So I began to track where many of these cash-rich, dividend-gushing international blue chip stocks ended up after saying adios to the NYSE and NASDAQ.

I found that they now trade “hidden” on the over-the-counter market, also known as the pink sheets. Quality pink sheet names include Lufthansa, Adidas, Peugeot, Marks & Spencer, Rolls Royce, Gazprom, Benetton, and Nestle.

As many of you know, this market can be treacherous. It is filled with 9,622 securities of uneven quality and liquidity.

“The Pink Sheets traditionally have been more of a free-for-all,” says Eric Pan, a professor at Benjamin N. Cardozo School of Law in New York. He added, “You’re playing with the big boys, and you need to be savvy.”

As Pan indicates, you need to be careful in pulling blue chip needles from this pink sheet haystack. In particular, trading volume is a key concern.

My Watch List

My first round of intensive research cut the 9,622 companies trading on the over-the-counter pink sheets down to a more manageable 129 companies. In my second round, only 58 companies made the cut.

It is from this group that I make my timely recommendations.

Here are some examples of the pink sheet blue chips on my watch list:

  • The monopoly operator of Hong Kong’s subway and rail transit
  • The only company in the world that uses robots to make robots
  • The largest chemical company in the world
  • The largest software company on the planet
  • A $10 billion global powerhouse in hydro power

Pink sheet blue chips often trade at a discount to their prices in their home markets. In other words, because these global blue chips stocks trade unevenly and “below the radar,” they sometimes trade lower on the pink sheets than in their own countries.

On Thursday, I’m going to give you three more important reasons to target pink sheet blue chips. I’ll also outline one of my favorite ideas right now.

Until next time,

Carl Delfeld for Wealth Daily

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