Kansas City Southern Offers Deals in Market

The bid for rail operator Kansas City Southern shows investors can still find undervalued stocks in the market, CNBC’s Jim Cramer said on Wednesday.

The ‘Mad Money’ host said he was concerned about those concerned about a generally frothy environment, pointing to the exploding interest in cryptocurrency dogecoin, NFTs and SPACs in recent months.

‘But every time I start worrying about the madness, we get a reminder that stocks may be a lot cheaper than you think, at least in terms of what other companies are willing to pay for the whole business, even if you not, ‘Cramer said.

Just look at the competitive bid for Kansas City Southern, he said.

Canadian National Railway on Tuesday announced its offer to acquire Kansas City Southern in a deal that the company valued at $ 325 per share.

This is higher than a proposed deal launched late last month by the rival Canadian Pacific, which said it had a stock-and-cash deal to combine with Kansas City Southern, which owns the company in Missouri valued 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 (KSC) railroad locomotive will run through 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 automotive industry, has a very important business that is apparently being overlooked, Cramer said.

“The market has clearly had this one wrong – otherwise you would have gotten not one, but two major takeover bids,” Cramer said. “It tells you that Kansas City Southern was massively undervalued before the first offer of the Canadian Pacific. And yes, I think the other railroad operators have a better understanding of what KSU is worth than Wall Street.”

It’s important not to extrapolate too much, warns Cramer. “It does not mean that every company is a bargain. Some of them are too big to be obtainable, some of them are really too expensive,” he said, while the addition of antitrust issues would put other transactions in the way.

At the same time, he claims, “there are enough companies like Kansas City Southern.”

“This deal should make you think about it the next time you hear someone whine about how expensive stocks are,” Cramer said. “Sometimes companies in the same industry are willing to pay a lot more for a share than the market is. I consider that a very encouraging sign. So do not be discouraged when so many people insist on buying things you think not value at all. ‘

.Source