Global Giants Hiding on the Pink Sheets

By DAN BURROWS

With few exceptions, investors should run screaming from any stock quoted on the Pink Sheets. This over-the-counter electronic quotation system (which used to print share prices on pink sheets of paper) has no listing or regulatory requirements. That's helped make it a haven for companies that are thinly traded or closely held, perhaps in bankruptcy, and, of course, penny-stock pump-and-dump frauds.

And that's being charitable. The Securities and Exchange Commission, which has no oversight of Pink Sheets stocks, warns investors that companies listed there can be "among the most risky investments." So it comes as something of a surprise that some of the biggest, best-known foreign firms chose to list on the Pink Sheets exclusively in the the U.S.

Take Nestle (NSRGY), for example, the world's largest food and beverage company. Sure, you could buy shares on Nestle's home exchange, but then you'd be subject to currency risk converting dollars to Swiss francs. So that leaves you with Nestle American Depositary Receipts (or ADRs, a vehicle foreign companies use to trade in the U.S.). Nestle purposely eschews listing its ADR on a major exchange such as the Nasdaq because it would have to prepare two sets of financial statements -- one in accordance with international standards and another adhering to U.S. standards.

The bottom line is that the absence of regulatory requirements in the over-the-counter market makes life easier and cheaper for Nestle and scores of other legitimate companies -- even as that lack of oversight provides a breeding ground for some seriously sketchy equities.

Using data from Capital IQ and Thomson Reuters, we screened for well-known, large-cap foreign companies (minimum market cap of $50 billion) listed only on the Pink Sheets in the U.S. that are outperforming the S&P 500 so far this year. We also looked at trailing price-earnings ratios to see whether these stocks look cheap or expensive relative to the broader market.

Here, then, are ten blue chips on the Pink Sheets that may be worth further scrutiny for your portfolio.

Industrial and Commercial Bank of China (IDCBY)
Market Cap: $282 billion
2010 Price Performance: +17% (since Jan. 20)
+/- S&P 500: +8%
Shares in the world's biggest bank by market cap offer a 30% discount to the broader market on a trailing earnings basis.

China Construction Bank (CICHY)
Market Cap: $249 billion
2010 Price Performance: +24%
+/- S&P 500: +15
Shares in the world's second biggest bank by market cap trade at a 25% discount to the broader market by trailing earnings.

Nestle (NSRGY)
Market Cap: $192 billion
2010 Price Performance: +21%
+/- S&P 500: +12
Trading in-line with the S&P 500 on a trailing earnings basis, shares in the world's biggest food and beverage company don't look like a deep bargain, but they hardly look pricey, either.

LVMH Moet Hennessy Louis Vuitton (LVMHF)
Market Cap: $78 billion
2010 Price Performance: +36%
+/- S&P 500: +27%
Shares in the French luxury powerhouse look richly priced, trading at a sevenfold premium to the S&P 500, but then the recovery in high-end discretionary spending appears to be accelerating.

Daimler (DDAIF)
Market Cap: $74 billion
2010 Price Performance: +28%
+/- S&P 500: +19%
Best-known for manufacturing the Mercedes-Benz, shares in the German automaker offer a modest 6% discount to the broader market.

BASF (BASFY)
Market Cap: $71 billion
2010 Price Performance: +29%
+/- S&P 500: +20%
Shares in the Germany's answer to DuPont offers a compelling 26% discount to the broader market on a trailing earnings basis.

Xstrata (XSRAY)
Market Cap: $63 billion
2010 Price Performance: +16% (since Jan. 5)
+/- S&P 500: +7%
Shares in the Swiss mining giant trade at nearly a 50% premium to the broader market by trailing earnings, but then the global commodities boom shows no signs of slowing down.

Anglo American (AAUKY)
Market Cap: $57 billion
2010 Price Performance: +11%
+/- S&P 500: +2%
Another play on the global commodities boom, the British mining company's stock trades at a whopping 100% premium to the S&P 500 on a trailing earnings basis.

Hennes & Mauritz (HNNMY)
Market Cap: $56 billion
2010 Price Performance: +25%
+/- S&P 500: +16%
The Swedish fashion retailer's shares look marked down, sporting a discount of more than 100% to the broader market by trailing earnings.

SABMiller (SBMRY)
Market Cap: $51 billion
2010 Price Performance: +13%
+/- S&P 500: +4%
Shares in the British beer company fetch a pricey 53% premium to the broader market by trailing earnings.

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