Losers win. What can I say, that's what those who leave this market or short it face. It's stunning, and it's a major prop to stocks of all kinds, especially because the corporate buyers are now coming after sub-par companies. To put it more bluntly, they are buying stocks that made good shorts until they become overnight longs with a terminal value for anyone betting against them.
Let's start with Amplify Snacks Brands (BETR) , because the company's foods are supposed to be better for you. Here's a company we had on Mad Money ages ago, when the stock was in the high teens. Hey, it made sense back then because Skinny Pop, its ubiquitous fresh popcorn, had taken over a ton of square feet in seemingly every supermarket.
But the problem was we could never understand its valuation. How do you put a price tag on a company that's barely profitable, with profitability that peaked a couple of years ago?
The answer? You get a bid, that's how. So, a $500 million company, trading at $7 -- 28 times earnings -- gets a $12 bid from confectioner giant Hershey HSY and now we know what it's worth -- not to the stock market, but to a real buyer.
It makes you think that, if a company that came public just a few years ago and traded at $17 about 14 months ago before plummeting to a little below $5, could be worth a substantial premium, then are all the prices from this beleaguered group out of whack?
Or to put it another way, did Conagra (CAG) steal the red-hot Boomchicka for $250 million in September? Is that why Amplify sold? Or, more important, is Conagra's stock too cheap? I know Kraft-Heinz (KHC) hasn't been growing. Will this deal spur new thoughts about a take-out for Conagra, which reports this week? It's what happens when you debate valuation.
How about Kindred Health (KND) , with a stock that traded at $27 two years ago before falling on hard times? This health care amalgam of nursing centers, rehabs and hospitals, is said to be getting a $9 bid from Humana (HUM) and some private equity firms. That's just slightly more than it traded on Friday, but up about $4 from where it traded just a month ago. The private equity companies and Humana intend to divvy up the assets. It's a big win for what was a sorry loss.
Once again, a company that Wall Street had given up on turns out to be worth a lot more to shrewd buyers than it did to those funds that own and trade for a living. That will cause many people to look at a host of companies which, right now, are thought to be worth a lot less than they are trading for.
If Kindred's stock, trading at 28 times earnings before the bid, can be worth a lot more than we thought, how about the sinking Community Health Systems (CYS) , with a heavily shorted stock that trades at $4, or about $500 million because it keeps losing money? How about the $1.4 billion Tenet Health (THC) , with a nasty balance sheet that could rapidly be cleaned up by a bigger firm?
So, at the end of the year, with lots of tax loss selling, it makes you think, what else? Where else? What sectors? What other losers are out there?
And that's just what funds will do today. Be on the prowl. Because there are way too many companies that look like Amplify or Kindred, and are ripe for the buying.