Pink Sheets Can Be Powerhouse Stocks

Pink Sheets Can Be Powerhouse Stocks

When some investors refer to “pink sheets” they’re thinking about stocks that trade on the Pink Sheets Stock Exchange. In fact, this is not an actual exchange, but an electronic quotation system (the “Pink Quote”) that displays quotes from broker dealers for many over-the-counter (OTC) securities.

Brokers who buy and sell cheap stocks can use the Pink Quote to publish their bid and ask prices. The quotes are then published electronically and the name “pink sheets” comes from the color of the paper the quotes used to be printed on. 

Most of the companies in Pink Sheets Stock Exchange are small, often undervalued, and usually overlooked by Wall Street analysts. Most do not meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange or the NASDQ.

However, this isn’t always the case. Some large foreign companies voluntarily list themselves through the Pink Sheets Stock Exchange to avoid having to disclose proprietary information to the SEC. Companies as large as Nestle S.A. moved into the American securities markets using the Pink Sheets. 

Additionally, a Pink Sheets listing does not mean the company can’t get listed on the other exchanges.  Although Pink Sheets companies do not have to disclose their financial results and material information, they’re not forbidden to do so. In fact, the Pink Sheets Stock Exchange encourages the companies trading that exchange to file the same type of documentation required by the larger exchanges.  
The basic difference is that the SEC does not oversee the Pink Sheets. This gives many companies looking to move from the Pink Sheets Stock Exchange to the AMEX or NASDAQ boards a chance to get their reporting system in order. Ultimately, trading as Pink Sheets helps these companies to qualify for the major exchanges.   

For most investors, though, the biggest advantage of buying Pink Sheets is that these stocks are normally low-priced. This means that buying a few hundred shares usually costs very little.

There are other good reasons to consider Pink Sheets as good investments. Our analysis team at PennyPic,for instance, looks for a company with lots of potential for growth and a substantial opportunity to seize a dominating position in their market. In other words, we're looking for big returns from cheap stocks.

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