“But every time I start worrying about insanity, 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 whole business, even if you don’t. Cramer said.
Take a look at the competing offers for Kansas City Southern, he said.
It is higher than a proposed transaction unveiled at the end of last month rival Canadian Pacific, which at the time said it had entered into a stock and treasury deal to combine with Kansas City Southern, which valued the Missouri-based company at $ 275 per share.
While Canadian Pacific has criticized the “unsolicited offer,” Cramer said the situation offered lessons to equity investors as they analyzed the market.
A Kansas City Southern Railroad (KSC) locomotive passes through Knoche Yard in Kansas City, Missouri on Tuesday, Jan.7, 2020.
Whitney Curtis | Bloomberg | Getty Images
Kansas City Southern, with its exposure to Mexico and the country’s auto industry, has a really big business that seems to have been overlooked, Cramer said.
“The market clearly had this one completely wrong – otherwise you wouldn’t have gotten not one, but two huge take-over bids,” Cramer said. “This tells you that Kansas City Southern was massively undervalued prior to the Canadian Pacific Railway’s first offer. And yes, I think other rail operators have a better idea of what KSU is worth than Wall Street.”
It’s important not to over-extrapolate, Cramer warned. “That’s not to say that every company is a good deal. Some of them are too big to acquire, some are really too expensive,” he said, while adding that antitrust concerns would prevent other agreements.
At the same time, he argued, “there are many companies like Kansas City Southern”.
“You have to think about this deal the next time you hear someone complain about the too high price of the shares,” 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 you think you have. value at all. “