The bid battle for Kansas City Southern rail operator shows investors can still find undervalued stocks in the market, CNBC’s Jim Cramer said Wednesday.
The host of “Mad Money” said he understands those who are concerned about a generally frothy environment, and noted the interest that has exploded in the dogecoin, NFT and SPAC cryptocurrency in recent months.
“But every time I start to worry about madness, it reminds us that maybe stocks are a lot less expensive than you think, at least in terms of what other companies are willing to pay for the whole company, even if they don’t you want it, ”Cramer said.
Just take a look at the competing offers for Kansas City Southern, he said.
On Tuesday, Canadian National Railway announced its bid to acquire Kansas City Southern in a deal that valued the company at $ 325 per share.
That’s higher than the settlement proposal filed late last month by Canadian rival Pacific, which said it had a stock and cash deal to combine with Kansas City Southern that valued the Missouri-based firm at $ 275 per share.
While Canadian Pacific has criticized Canadian Nation’s “unsolicited offer,” Cramer said the situation offers lessons for equity investors as they analyze 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 really important business that seems to have been overlooked, Cramer said.
“The market clearly had this completely wrong problem, otherwise you wouldn’t have gotten one, but two huge takeover bids,” Cramer said. “This tells you that Kansas City Southern was massively undervalued before Canada’s first Pacific offering. And yes, I think the rest of the rail operators have better control over what KSU is worth than Wall Street.”
It’s important not to extrapolate too much, Cramer warned. “That doesn’t mean all companies are a bargain. Some of them are too big to acquire, some are really too expensive,” he said, adding that antitrust concerns will be interposed in other businesses.
At the same time, he stated, “there are a lot of companies like Kansas City Southern out there.”
“This deal, you have to think about it the next time you hear someone complain about how the shares 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 find this a very encouraging sign, so don’t be discouraged when so many people insist on buying things that you think may be worthless. Absolutely not “.