Why Contrarians Are Buying Yahoo

by: Larry MacDonald

If anyone’s buying stocks these days it should be contrarian advisories like Contra the Heard. Editors Ben Stadelmann and Benj Gallander don’t disappoint. This year they have purchased shares in Richmont Mining (NYSEMKT:RIC), Integrated Silicon Solution (NASDAQ:ISSI), Motorola (MOT) and just recently, Yahoo! (NASDAQ:YHOO).

Let’s take a gander at why they bought Yahoo! They offer at least six reasons:

1. Clean balance sheet and ability to weather recession ($3 billion in net cash that the company holds is “sweet, sweet, sweet,” says Contra The Heard)

2. Insiders own close to 20% of the shares and have a strong interest in the company doing well

3. Although Yahoo! doesn’t dominate the Internet the way it did a few years ago, “it is still the busiest portal on the web and remains a top-notch property”

4. Yahoo makes money quarter after quarter on annual sales exceeding $7 billion

5. Although online revenues will drop during the recession (and Google has a technological edge), sales in the sector should increase over the long term.

6. Firms that Yahoo might acquire are getting much cheaper.

Yahoo! is so cheap, I’m tempted to side with the Contra Guys on this one now (after being skeptical following the collapse of the Microsoft bid). Stadelmann and Gallander have been investing since the 1980s and have seen a lot come and go. They’ve taken a beating lately, with a 15.5% loss in 2007 – and, no doubt, another big loss for 2008. Still, they lay claim to an average annual return of 21.8% over the past 15 years.