Rumors and what to make of them.

Takeover rumors surface every now and then and make it to publications like WSJ. How can you use them ?

Here is a plan of action that I have followed (successfully so far):

• When the rumor surfaces, add the stock to your watchlist.
  If this is not the first time the target has been rumored to be a candidate, pay more attention.
  
• Don't go chasing the stock immediately, since the pop following the rumor can hurt you on subsequent bad news (it happens!).
  
• Occasionally, the target gets bought out immediately after the rumor. In such a case, if you do not already own the stock, just let it go. Don't dwell on it.
  
• If the stock retraces and comes back to its earlier price range (either because people have lost patience or because of earnings news) buy it. Make sure that the fundamentals still look ok, and the p/e and p/b are reasonable. Any recent (within the last year) and sizable insider buying is a big plus.
  

In my hit list, MGM, National Processing, Intercept, Legato, Overture and AT&T Wireless belong to this category.

A few more are still waiting to be bought!