Investors had waited nervously to see what words would come out of Jackson Hole, Wyoming this week, and Fed chair Jerome Powell's comments about inflation didn't create any unpleasant surprises for the market. That sent the Nasdaq Composite (NASDAQINDEX: ^IXIC), S&P 500 (SNPINDEX: ^GSPC), and Dow Jones Industrial Average (DJINDICES: ^DJI) higher on the day, reversing a portion of their losses from earlier in the week.
Daily Percentage Change
Daily Point Change
The consensus on Wall Street is that a new bull market has started, and there are new signs that companies are convinced that markets are looking up again. Initial public offerings and companies putting themselves up for sale are moves that typically happen when market valuations are fairly generous. With the latest news from Instacart and Hostess Brands (NASDAQ: TWNK) on Friday, it's apparent that a good portion of Wall Street thinks now is the best of times to make big strategic moves.
Instacart looks to go public
Privately held Instacart announced on Friday that it had filed a registration statement with the U.S. Securities and Exchange Commission on Form S-1. The move begins a timeline that could see the grocery delivery specialist's shares start trading publicly as soon as mid-September.
Many investors had looked for Instacart to have an IPO long before now, but market dynamics got in the way. The grocery delivery giant has relied on private funding for more than a decade now, with major private equity companies providing a funding round in early 2021 that valued the company at nearly $40 billion.
Instacart's numbers show the value of waiting a while before going public. The company had gross transaction volume of $28.8 billion in 2022, with revenue jumping 44% from 2021 levels to $1.8 billion. The pace of growth has held up well so far in 2023, and best of all, unlike many companies that do IPOs, Instacart is already solidly profitable.
Already, major investor PepsiCo (NASDAQ: PEP) has committed $175 million to purchase stock in an associated private placement, lending credibility to the offering. With the implied valuation expected to be well below that $40 billion peak from a couple of years ago, Instacart could generate a lot of interest among would-be shareholders.
Hostess Brands makes a sweet move
Elsewhere, shares of Hostess Brands soared 22% on Friday. The maker of Twinkies and other snack products made a shareholder-friendly move that brought the stock close to all-time highs.
Hostess Brands is apparently looking at potentially selling itself, according to reports from Reuters. The strategic moves come after some of its snack food rivals apparently expressed interest in buying the Twinkie maker, including PepsiCo, candy maker Hershey, cereal specialist General Mills, and global food giant Mondelez International.
The move comes even as many consumer staples stocks remain at fairly rich valuations. Hostess trades at about 22 times its trailing earnings, but PepsiCo, Mondelez, and Hershey all sport higher earnings multiples than that. In general, investors have liked the stability of food stocks, particularly ones with the pricing power to pass through inflationary pressures to customers in the form of higher prices.
There's no guarantee that Hostess will get a deal done, and today's spike might be just about all the premium an acquirer would be willing to pay. Nevertheless, the news shows that even relatively quiet parts of the market are looking for ways to find value from smart combinations.
10 stocks we like better than Hostess Brands
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Hostess Brands wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of August 21, 2023