Hitachi: Blue-Chip Bargains on Pink Sheets
NEW YORK (TheStreet) -- For the investor willing to expend the time and effort in researching a stock (i.e., "due diligence"), there are a number of blue chips listed on the Pink Sheets that offer long-term potential for healthy total returns.
While the Pink Sheets have the reputation for having thinly traded firms of marginal investment value, that is not true -- stocks of some of the biggest and best companies in the world are listed there. Management of these firms has determined that it is better to be on the Pink Sheets. That is a huge advantage for a determined investor, as many Pink Sheet stocks are thinly covered by the analyst community and undervalued, compared to peers on the other exchanges, as a result.
For a recent example, Dinakar Singh, founder of TBG, a $6 billion hedge fund, detailed in a speech at a recent investor conference why he was so bullish about Hitachi (OTC: HTHIY), the Japanese conglomerate that is a Pink Sheet stock. Singh was overall positive on Hitachi as the market is mischaracterizing the equity as a consumer electronics firm.
According to Singh, Hitachi is now an industrial equipment company, much like Emerson Electric (EMR) and Phillips (PHG). Hitachi should be trading at the price-to-earnings ratios of Emerson Electric (32) or Phillips (41), rather than below 15. The potential for gains here is obvious.Generally, management lists on the pink sheets to evade the greater disclosure requirements of the Big Board. Due to its Pink Sheet status, Hitachi is only covered by one analyst, according to Yahoo! Finance. Its average daily volume is around 40,000 shares with a market capitalization of about $34 billion. The average daily volume is almost 3 million for Emerson Electric with a market capitalization of under $48 billion. For Phillips, the average daily volume is around 620,000, with a market capitalization of about $32 billion. If Hitachi were trading at the same price-to-earnings valuation as Emerson Electric or Phillips, its market capitalization would be much greater than either of theirs. Eventually the market should fully value Hitachi, resulting in profits for those buying before that takes place. Other well known names that are Pink Sheet stocks include:
- Samsung (OTC: SSNLF), the highly profitable Korean high tech behemoth;
- Nestle (OTC: NSRGY), the Swiss consumer goods giant;
- Volkswagen (OTC: VLKAY), the third-largest seller of motor vehicles in the world last year;
- Roche (OTC: RHHBY) the Swiss pharmaceutical firm;
- BASF (PINK: BASFY), referred to as the German version of DuPont (DD) and Dow Chemical (NYSE: DOW); and
- Two of the biggest banks in the world, Industrial and Commercial Bank of China (PINK: IDCBY) and China Construction Bank (PINK: CICHY).
Jonathan Yates does not have a position in any of the stocks mentioned in this article. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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