Cramer: Beware all the M&A frenzy
Jim Cramer | [email protected]
That's how I feel about the now takeover-rumor-a-day fodder that we see in what is one foot away of a frothy market. I say one foot away because the valuations are still low enough that there's room for more deals than we have already have. It's just that the mill is too ginned up for my taste.
Take yesterday, for example. We woke to a Swedish tabloid report that Joy Global might be in the crosshairs of Scandinavian giant Atlas Copco, which, among other businesses, makes mining equipment as does Joy.
Now, I have been a huge fan of Joy Global and recognize that it is one of the premier mining-equipment companies in the world with a huge business in China, India, and the United States. But the company acknowledged that there's been plenty of weakness in the United States because of slowing coal production, that China's been slowly picking up, and that India's not big enough to counter the headwinds from the U.S. and the Peoples Republic.
True, the company does have a fabulous installed base and a terrific service revenue annuity stream that does make the company's earnings more consistent than you would otherwise expect. I just don't think you should chase it. If the rumor turns out not to be true, the stock falls quickly to the low $60s.
Or how about the note out of BMO Capital this morning that Kohl's could be a takeover target because it has terrific cash flow and because it owns cheap real estate. I like to shop at Kohl's. I go through shirts constantly because of the pancake makeup that gets ingrained into my collars, and Kohl's has some inexpensive shirts that I can afford to throw away after a few wearings. It has terrific slacks, and it is my go-to place for socks. I've also bought a lot of kitchen goods there.
But is this really the right time for an LBO of a department store? Is this the moment that you could see a bid 30 percent higher than where the stock trades right now, as BMO suggests? Sure, the last quarter was OK, but you could get hurt buying it up here if nothing happens and I would pass up on the opportunity.
Finally there is the oft-rumored Best Buy. A local paper in Minneapolis says that Best Buy founder Richard Schulze may still bid for the company. Yep, the Minneapolis Star Tribune says a deal is still on the table. Terrific--it's been on the table for about seven points now and those have been seven costly points, although the stock did dip well below these levels before recovering after a decent quarter and a couple of upgrades.
But let's think about it: Would the Minneapolis Star Tribune really know what's going on? Would anyone? Does BMO really have something beyond a thesis? Does this Swedish tabloid really have the inside track on Atlas Copco's next move?
Sorry, call me skeptical. I can't countenance buying any of these stocks on a takeover basis even as there have been many more takeovers than I thought so far in 2013. I just think there's too much rumor-mongering and too few facts for my taste. Enjoy the rumors--just don't get taken in by them.
Disclosures: Cramer's charitable trust has no positions in the stocks mentioned.