The bid battle for rail operator Kansas City Southern shows that investors can still find undervalued stocks in the market, CNBC’s Jim Cramer said Wednesday.
The host of “Mad Money” said he understands those concerned about a generally frothy environment, noting the explosive interest in the cryptocurrency dogecoin, NFTs and SPACs in recent months.
“But every time I start to worry about the madness, we get a reminder that stocks might be a lot cheaper than you think, at least in terms of what other companies are willing to pay for the entire venture, even if you do. doesn’t., ‘said Cramer.
Just look at the competitive bids for Kansas City Southern, he said.
On Tuesday, Canadian National Railway announced its offer to acquire Kansas City Southern in a deal that valued the company at $ 325 a share.
That’s higher than a proposed transaction revealed late last month by rival Canadian Pacific, who said it then had a stock-and-cash deal to combine with Kansas City Southern, which valued the Missouri-based company at $ 275 each. part.
While Canadian Pacific has criticized Canadian Nation’s “unsolicited offer,” Cramer said the situation provides lessons for equity investors when analyzing the market.
A Kansas City Southern (KSC) rail locomotive passes Knoche Yard in Kansas City, Missouri on Tuesday, January 7, 2020.
Whitney Curtis | Bloomberg | Getty Images
Kansas City Southern, with its exposure to Mexico and the country’s auto industry, has a very important business that appears to have been overlooked, Cramer said.
“The market was clearly wrong – otherwise you would have gotten not one, but two huge takeover bids,” said Cramer. That tells you that Kansas City Southern was hugely undervalued before Canadian Pacific’s initial offer. And yes, I think the other rail operators know better what KSU is worth than Wall Street. ‘
It’s important not to extrapolate too much, Cramer cautioned. “That doesn’t mean every business is a bargain. Some are too big to acquire, some are really too expensive,” he said, while adding antitrust concerns will get in the way of other deals.
At the same time, he stated, “there are plenty of companies like Kansas City Southern.”
“This deal, you have to think about it the next time you hear someone whine that stocks are too expensive,” Cramer said. “Sometimes companies in the same industry are willing to pay a lot more for a stock than the market. I take that as a very encouraging sign, so don’t be discouraged when so many people insist on buying things that you think they have. no value at all. “