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Strategies & Market Trends : Three Amigos Stock Thread -- Ignore unavailable to you. Want to Upgrade?

To: Phil Jacobson who wrote (4952)	5/20/1998 1:33:00 AM
From: Phil Jacobson	Respond to of 29382

Below is a great article from Cramer on TheStreet.com on buying takeover candidates...and especially companies that state their intentions to be taken over. Brings to mind that scam stock TALK. In mid-March, several brokers told "friends" that they had heard that TALK was going to get bought at around $30 on April 10. I got no less than three e-mails that day from unrelated parties all telling me the same story. And imagine that, these people's broker friends even knew the date! In real takeover situations it's almost impossible to predict the date of the announcement with any assurance. Meanwhile nobody with real money was buying at 23. April 10 came and went, now it's May 19 and the stock has dropped 15% to 20. They will soon be lucky to get 23. The source of these rumors, I'm convinced, was the CEO himself, who owns a large percentage of the stock and was trying to TALK the price up in order to justify a higher price to the companies he was trying to scam. Sorry for going off...I really hate those guys. ================================================================== Wrong! Tactics and Strategies: Cramer on Playing Losers in the Takeover Game By James J. Cramer 5/19/98 10:40 AM ET So Mercantile Stores (MST:NYSE) finally got that takeover bid. After all of those years of rumors. After all of the talk of $100 takeouts by major retailers, the king of the rumored bid is gone. And what has happened in the interim, while you waited for the Dillard's (DDS:NYSE) bid, which amounted to a very small premium over 10 years of hope? Lowe's (LOW:NYSE) tripled. Home Depot (HD:NYSE) quadrupled. Wal-Mart (WMT:NYSE) went up five times. Gap (GPS:NYSE) moved up sevenfold. Even Sears (S:NYSE) tripled. Yeah, you get the picture. This takeover game is one unrequited nightmare when you are buying stocks with crummy fundamentals. This is the second time in two weeks that we are reminded that buying stocks with good fundamentals trumps buying stocks with fading fundamentals any day of the week. At least this time, unlike Sports Authority (TSA:NYSE), we got a premium on the takeout. Let's review the dos and don'ts of takeover investing. Never, ever buy a stock because you hear it is going to get a takeover bid. Buy stocks with good fundamentals -- improving sales, good execution, fine balance sheet, excellent management -- and over the long term you will do much better than buying companies with crummy fundamentals that you hope will get bids. This logic is not restricted to retail. How much better would you have done in Microsoft (MSFT:Nasdaq) on the fundamentals, even with the Justice Department as attack dog, than with Novell (NOVL:Nasdaq) on a possible bid? Or a well-run Royal Dutch (RD:NYSE) versus a bumbling Amerada Hess (AHC:NYSE)? Or a sizzling Cisco (CSCO:Nasdaq) versus a damaged Digi (DIGI:Nasdaq) (even though I am now long both)? Or a dynamite Hershey's (HSY:NYSE) versus the old soggy Quaker Oats (OAT:NYSE)? How can you spot the fundamentals? All right, let's do some frank talking here. I am a Phillies fan. We are not as good as the Yankees. How do I know this? The Phillies have a set of statistics that can be stacked up against the Yankees pretty easily. On a given day, preferably when Schilling is on the mound, we look darn good. That doesn't make us the better team. If you don't understand that stats -- wins, and pitching, and the importance of coaching, and the talent itself -- can be measured objectively to predict what will happen, barring tons of luck, you should just shut up and root for the home team. Stocks are like that, too. If you can't tell the difference between a Gayfer's (Mercantile division) and a Gap, you should let someone else do it for you. That's what mutual funds are for. Sure, if you bought Mercantile Stores on Friday, you can have a good laugh at me. You can say I don't know what I am talking about. But if you bought it in 1988, when I first heard the rumors, you will have wished that TheStreet.com came out 10 years ago. Or if you had bought it during any of the dozen times Dorfman pumped it, you would have puked at this bid. The S&P killed you during this period. All takeover tips are predicated on the bid being written up this weekend by Steve Lipin in Monday's Wall Street Journal. But Lipin will only write so many stories. Better to buy the stocks that don't need bids to go higher.