Why Yahoo Is A Great Stock To Pick In A Rallying Stock Market

| About: Yahoo! Inc. (YHOO)

The US stock market has reached new all-time highs with its broad indexes increasing more than 20%. It is obvious how the market will close out a successful year. Although there are suggestions that this is due to the market shrinkage, there are still companies to invest in that will provide profits for investors. Among them is Yahoo (NASDAQ:YHOO), an internationally-recognized Internet services giant that just had a good week.

Acquisitions, Acquisitions, and Probably More Acquisitions

Recently, Yahoo has set a new focus as it made two out of three acquisitions that could potentially aid the company's video delivery. First, it hired a team of developers from DreamWorks Animation, the same group that developed an app known as the Ptch. The main objective of the new app is to compile videos and photos on several users' smartphones and eventually form a complete event. And this will now move to Yahoo. The second one was EvntLive, which is a virtual site for live concerts. Although the information on the deal was not disclosed, Yahoo did confirm the acquisition.

Yahoo sees potential in EvntLive and can even use the technology to fix its poor performing video business. The company not only expects EvntLive to increase the number of Yahoo video users, but also boost the premium advertising into the service. The two acquisitions along with the third one, Qwiki, shows that Yahoo is more serious now than ever particularly when it comes to video technology. This means that YouTube and Netflix will have fiercer competition very soon, an important move since half of the Internet's traffic dedicated to video streaming. Marissa Mayer, Yahoo's CEO, did announce back in summer that video will be Yahoo's principal area of investment starting next year.

As if the acquisitions mentioned above are not enough, there are talks that there is another company that has caught Yahoo's eyes. This time, it is Imgur, a San Francisco startup business as a photo sharing website. The tech giant and Imgur are said to have been discussing the deal since the start of the fall season, but the terms are still vague. It is true though that Yahoo orchestrates expensive acquisitions, which was proven by the Tumblr purchase earlier this year which cost the company $1 billion. It is highly unlikely though that Yahoo will pay the same high amount for Imgur, but the probable purchase will definitely not be cheap. Reports are saying that Imgur will be around $100 million to $500 million.

The acquisitions and the fierce movement did affect the YHOO stock. Right now, the shares are priced at $26.62, making them more expensive than the industry standard. 26 analysts have set YHOO's price at $0.38 per share, a higher number compared to the same quarter as last year. In addition, the whole year EPS estimate is a $0.29 increase compared to last year's annual results.

The public will now receive much clearer information regarding Yahoo's revenue after the Securities and Exchange Commission asked the company to do so. The request will allow investors to determine whether or not CEO Mayer can really turn the company around and promote growth.

Why Buy Yahoo

Yahoo is already a recognized brand around the world. As the Internet continues to be a part of the consumers' lives, investors can expect Yahoo to be one of the major players in the stock market for a very long time. YHOO is making the most out of its technical side, but these days puts have become quite popular. Puts are actually trading twice as much as the intraday volume. Right now, the most attractive for the option players is the 34 strike put for January 2014.

It cannot be denied that Yahoo is doing exceptionally well in the last several months. It has almost traded to its all-time highs and there is a huge chance that this trend will continue. Upon analyzing the simple moving averages of the stock, YHOO is trading its key averages, a sign that the stock will have a bullish price action just around the corner.

As mentioned earlier, YHOO is priced much higher than the industry standard. This is often correlated to the revenue growth and earnings. Although Yahoo has had a mixed reaction on its revenue, the company has pleased investors with its performance and earnings.

YHOO 1 Year Price Returns Chart

YHOO 1 Year Price Returns data by YCharts

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.