Investing in Rumors: Rio Tinto, BHP Billiton Cool Off
By Ian L. Cooper
Buying a stock based solely on unconfirmed news isn’t the best way to make money. Rio Tinto, for example, was up more than $40 the other day on rumors that BHP Billiton approached Rio Tinto with a buyout rumor.
There was only one problem, though. There was no approach from BHP or, for that matter, any other parties, according to Rio Tinto, immediately killing the rumor. Still, the dumb money followed the rumor, jacked up the price by $40, and stood their watching as shares tanked $15 the next day as the rumor dried up.
We’re not saying that a deal between Rio Tinto and BHP Billiton could never happen. It could eventually happen. But not now… BHP Billiton would have to cut its buyback plans short. And with BHP Billiton’s CEO retiring this year, with no named successor, the company may not be in a rush for transformation.
We’d suggest keeping Rio Tinto on radar. Word on the Street is that Rio Tinto may be looking at refinancing opportunities.
Take care,
Ian L. Cooper, Editor, Early Alert Trader
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