Between covid, covid again, and now war, investors have spent two years on the edges of their seats. This has left many companies undervalued relative to the strength of their business.
Recently Toronto-Dominion Bank (TD) announced that it would acquire First Horizon Corporation (FHN) . The buyout will cost TD Bank $25 per share, a pretty decent bargain given First Horizon’s performance. It’s an even better offer for current shareholders of FHN stock, representing a 37 percent increase over the company’s previous stock price of around $18.25.
Paul Price suggests that investors can learn a lot from this deal.
“Brave investors who knew that FHN was a fine company could have picked up its shares as low at $6.30 during the Covid-panic low," Price wrote recently on Real Money. The company's "long-term growth had been well established from 2011 through 2019."
In addition, "shareholder returns through Aug. 31, 2020 represented just a fraction of the value which had been created over those eight years. That is the essence of what I speak about frequently when I suggest major ‘catch-up’ moves higher are in the offing."
Perfectly legitimate insider purchases can often signal that a stock is undervalued. Indeed, insiders at FHN "did not miss their chance to buy shares on the cheap during March and April of 2020. Directors plowed over $1.5 million of their own money into 168,000 shares at an average cost of $9.20.”
Price says there's another important lesson from the deal. "Not one of those directors were able to 'call a bottom' in FHN. They simply bought when they felt the company's real worth was much higher than what they were paying.