Yahoo Inc. (NASDAQ:YHOO) is a top digital media company around the world. Yahoo's website has many features including: e-mail, news, shopping and finance. Yahoo is ranked as the fourth most visited website in the world. We recently purchased Yahoo to go with several other media companies we own. The company was founded in 1994 and went public in 1996. During the technology boom, its market cap exceeded $100 billion. Today it has fallen to $25 billion.
Approximately 60% of the value of the company is in Asian internet investments: Yahoo Japan and Alibaba. Yahoo owns a 35% stake in Yahoo Japan (the 15th most visited site in the world) which has surged in price recently. Yahoo's stake in Yahoo Japan is now worth over $5 billion. Yahoo also owns a 24% stake in Alibaba, which is a leading Chinese-owned internet company, estimated to be worth $10 billion or 40% of Yahoo's market cap. There are rumors that Alibaba is preparing for an IPO in 2013 which could significantly benefit Yahoo shares.
In 2012, Yahoo named Marissa Mayer, a Wisconsin native, as its CEO. She is the company's fifth CEO in four years. Yahoo spurned a takeover offer from Microsoft (NASDAQ:MSFT) in 2008 which was worth $40 billion (60% more than today). Mayer, who came from Google (NASDAQ:GOOG), is working diligently to turn around this struggling media company. Lastly, Yahoo recently broke out of a seven year downtrend, suggesting a mega low risk uptrend is developing.
Eli Lilly (NYSE:LLY) is the tenth largest pharmaceutical company in the world with a $60 billion market cap. The company, headquartered in Indianapolis, has approximately 38,000 employees worldwide with 7,600 just in research and development. Some of Lilly's top selling drugs include: Zyprexa (schizophrenia), Cymbalta (antidepressant), Alimta (non-small cell lung cancer), Humalog (diabetes) and Cialis (erectile dysfunction). Foreign sales are approximately 46% of overall sales.
Lilly has recently broken out of an eight year downtrend. A large reason for this underperformance was the expiration of patents on some of its key drugs. Coincidentally, a few years ago, another one of our holdings, Pfizer lost patent protection on its largest drug, Lipitor, right around the time its stock price broke out of a long-term downtrend. Pfizer shares have performed extremely well since its breakout. Lilly pays a 3.6% dividend yield and trades near a 50% discount to shares' all-time high in 2000. The price earnings ratio is approximately 15, which compares to the company's P/E of nearly 37 back in 1998. The company has several new drugs that are performing well, along with many promising drugs. Pharmaceuticals has been one of our favorite industries over the past few years and with our recent purchase of Lilly, it now joins the others.
We also added two large financial companies to our accounts: Citigroup (NYSE:C) and Bank of America (NYSE:BAC). The financial stocks are a key component in the overall economy. When they break out of downtrends, it is a key signal that the overall market is likely to advance. Both Citigroup and Bank of America continue to benefit from the improvement in the economy and the housing market. Both stocks have recently broken above their sharp downtrends. This suggests a mega-turnaround.
Citigroup is a $140 billion company with over 200 million customers in 160 countries. It has over 266,000 employees in a variety of fields including banking, insurance, investment banking and asset management. Citigroup's stock is still down more than 90% off their 2007 highs from just prior to the financial crisis.
The company and industry are in turnaround mode from the depths of the financial crisis. New CEO Michael Corbat, recently took over from Vikram Pandit who was fired from the company in 2012. Citigroup is slashing 4% of its workforce and is cutting back some operations in Turkey, Pakistan and Uruguay. The cuts are expected to save approximately $2 billion over the next two years. The company is also repairing its balance sheet from the peak of the crisis. "Toxic" assets are now $156 billion at year end compared to $730 billion in 2008. Allowances from loan losses are down to $25.5 billion from $30.1 billion the prior year. Citigroup has slashed its dividend from over a 4% yield in 2007 to a 0.1% current yield. The company recently passed the Federal Reserve 'stress test' and requested approval to buy back $1.2 billion worth of shares, but has not yet asked to increase its dividend.
Bank of America is a $130 billion company, with 57 million customers in the United States. During the financial crisis, the bank acquired mortgage lender Countrywide and investment bank Merrill Lynch. The company has over 267,000 employees worldwide. Shares are still off more than 75% from their pre-crisis peak. Like Citigroup, Bank of America cut its dividend yield dramatically, from over 4% pre-crisis to 0.3% today. Bank of America is in cost-cutting mode as well and it is about 50% of the way through an $8 billion expense saving program. The bank also passed its latest Federal Reserve 'stress test' and announced it will buy back $5 billion worth of shares and redeem about $5.5 billion worth of preferred shares. We expect to soon add additional financial stocks to our accounts as they appear to be in the early stage of a major turnaround.
It is quite probable that this bull market, notwithstanding corrections, has a long lifespan ahead as the economy is slowly gaining traction. This expansion, still fragile, is performing better than expected --- a very positive factor.
Disclosure: I am long YHOO, LLY, C, BAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.