We keep hearing that the stock market's too expensive, that there's no real value and we are in the danger zone. Look, with the joke that is the Dogecoin and the travesty that is a SPAC-a-minute with celebrities cashing in, and the insanity of buying a non-fungible token and getting nothing for it, I get how you could arrive at that verdict.
But then consider the case of Kansas City Southern (KSU) , the last remaining not-too-large-a-railroad-to-be-acquired which got a bid this morning from Canadian National (CNI) for $325 or $33.7 billion. That alone is a big deal because Kansas City Southern's stock is up 40 points or 15%.
What matters more, though, is that this bid is on top of a bid for Kansas City from Canadian National's smaller rival, Canadian Pacific (CP) for $25 billion.
Consider that six months ago this stock was at $175 and doing pretty well, a good company with some terrific routes to Mexico. Many people do not understand the role of Mexico when it comes to automobiles and the rails. As someone who has a business in Mexico I am always shocked that that you have cities like Puebla or San Luis Potosi that are like Detroit during the heyday. Almost every company has a big plant in Mexico because until President Trump, it is where many companies, but especially foreign companies, made cars to import to here. You have to send cars via rail if you are going to make any money and whoever gets to own KSU gets to own that market, which, by the way is worth a heck of a lot more under Biden than under Trump. President Biden may call himself a union man but automakers moved to Mexico to avoid unions.
Then take a look at KSU's exposure to the Gulf where the economy is booming, teaming with plants to make plastic as well as all sort of industrial gases. It, like the auto market, is so strong, and it's so perfect for railroad tanks, that it's a fantastic place to do business, real business.
Yet, the market had this one completely wrong or you would not have not one but two companies willing to spend a fortune to get this prize.
I am not saying that every company in this market is a bargain. There are some companies that are too big to buy and might be too expensive to own. There are other companies that would not be allowed to combine. If Union Pacific were to try to buy Norfolk Southern (NSC) there would be an amount of value created that would be obscene if regulators would allow it, which they won't. Heck, if Bank of America (BAC) were able to merge with JP Morgan (JPM) there would be an extravaganza of value created, but there would be too much concentration of power.
We have to care about this bidding war because there's a lot more woe-is-me going on about stocks right now than there should be. As stocks slide remember that there are plenty of stocks, like KSU, that are worth a lot more to someone else or many others than they are to you.
