Takeover Talk Isn't Always So Cheap - TheStreet

Takeover Talk Isn't Always So Cheap

Cramer warns about reaching for a loser stock because of the takeover talk surrounding it.
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Take a look at the 10-year chart of

Asarco

(AR) - Get Report

. See that spike a decade ago? That was my wife taking down some of the copper maker in speculation that it would be acquired.

I mention it because Asarco is soon to disappear after a spirited bidding war, at a price that is below what we paid 10 years ago! What a sobering lesson for those involved in takeovers.

Hardly a day goes by without some stock that should be lower getting a boost on takeover speculation. Typically the stock is doing poorly with terrible management. Often the stock is about to report something disappointing, and someone who knows that is rumoring the stock higher to get out.

Just this week I saw this progression in

Mattel

(MAT) - Get Report

and

Revlon

(REV) - Get Report

, two of the worst-run companies in the world. It's always the same old story: The stock is so low that it

has

to get a bid.

Ironically, that was the same logic that propelled my wife to take some Asarco so long ago. The stock was down on its luck after a very big run.

Next time you reach for a loser because of takeover talk, remember our Asarco take and pass on it.

It's probably not going to happen, and if it does, it might be at a price that is lower than where the stock is trading and much later than can help you.

Random musings:

Lot of focus on

Adam

"The Man Who Stopped

Webvan

"

Lashinsky

and his

SEC

scoop but none on the

TaskMaster's

spot-on

piece about the reckless and illegal marking-up of REITs. Too bad -- that was a great story.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.