The bidding battle for Kansas City Southern operator shows investors can still find undervalued shares in the market, CNBC’s Jim Cramer said Wednesday.
The host of “Crazy Money” said that he understands those who are concerned about a generally frothy environment, emphasizing the explosive interest in the cryptocurrency dogecoin, NFT and SPAC in recent months.
“But every time I start to worry about insanity, I get a reminder that maybe the shares are a lot less expensive than you think, at least in terms of what other companies are willing to pay for the whole business, even if you don’t want to, “Cramer said.
Take a look at competing offers for Kansas City Southern, he said.
On Tuesday, the Canadian National Railway announced its offer to acquire Kansas City Southern in a deal that valued the company at $ 325 per share.
This is higher than a proposed deal revealed late last month by Canadian rival Pacific, which said it then has a stock and cash transaction combined with Kansas City Southern, which values the Missouri firm at $ 275 a share.
While Canadian Pacific criticized the Canadian nation’s “unsolicited offer,” Cramer said the situation provides lessons for stock investors as they analyze the market.
A Kansas City Southern Railroad (KSC) locomotive passes through Knoche Yard in Kansas City, Missouri, on Tuesday, January 7, 2020.
Whitney Curtis | Bloomberg | Getty Images
Kansas City Southern, with its exposure in Mexico and the country’s auto industry, has a really important business that seems to be overlooked, Cramer said.
“Clearly, the market was completely wrong – otherwise you wouldn’t have gotten one, but two huge takeover bids,” Cramer said. “That says Kansas City Southern was massively undervalued before the first offer in the Canadian Pacific. And yes, I think the other rail operators have a better approach to the value of KSU than Wall Street.”
It’s important not to extrapolate too much, Cramer warned. “That doesn’t mean every company is a business. Some of them are too big to buy, some of them are really too expensive,” he said, while adding antitrust concerns will hinder other transactions.
At the same time, he argued, “there are a lot of companies like Kansas City Southern there.”
“This deal, you have to think about it the next time you hear someone whining about how stocks are too expensive,” Cramer said. “Sometimes companies in the same industry are willing to pay much more for a share than the market. I think it’s a very encouraging sign, so don’t be discouraged when so many people insist on buying things that you think might have no value at all. “