Yahoo: Job Cuts Make This Stock A Big Buy Now

| About: Yahoo! Inc. (YHOO)

The rumor mill continues to turn when it comes to Yahoo (NASDAQ:YHOO). It is in the midst of a company rebuilding with CEO Scott Thompson at the helm and is about to release its first quarter profits. These numbers are not expected to be good with Thompson announcing lay offs of over 2,000 employees. More important than these numbers though, is Thompson's announcement on the plan for Yahoo in the coming months. This announcement is expected to outline where cuts will be made as well as restructuring the company as a whole. This is not good news for Yahoo employees, but as an investor this presents a unique opportunity.

The silver lining here is that Yahoo stock rose in the first quarter. Although only a modest improvement, it shows that consumers are gaining faith in Yahoo's changes. It is going to take months to bring Yahoo back to its previous glory and there will be plenty of bumps in the road. While analysts still view Yahoo as a neutral stock, while it sits at such a low price, I would start buying. Yahoo appears to have hit the bottom over the last 52 weeks, and so there is really only one direction to go.

Thompson has laid out a plan for bringing back Yahoo and he seems willing to make the tough decisions. Rarely does a company announce the firing of almost 2,000 employees and see its stock rise in the same quarter. This tells me that Yahoo is on the right track for the first time in quite a few years. The climb back up to the top will not be an easy one though with its competitors unwilling to relent control of cyberspace.

Beyond just its own recovery, Yahoo has to worry about the moves its competitors are starting to make. AOL (NYSE:AOL), for instance, recently announced it will be selling over 800 patents to Microsoft for just over $1 billion. This follows its announcement last November that it would buy back over $250 million worth of stock. This was done in response to shares dropping to new lows. AOL has responded to this downturn by taking the capital from the patent sale and distributing it amongst its stockholders. This caused a surge in its stock value to around $26 per share, significantly up from its 52 week low of around $10 last November. AOL is showing a commitment to its customers with this move and it's encouraging for its investors to see this rise in stock value.

The uncertainty surrounding Thompson makes AOL appear to be a desirable option if you are looking to avoid Yahoo. There is a concern, however, that it may have hit a ceiling with this recent announcement. The rise in stock value was concurrent with the announcement and a dip will likely follow. If you are looking to buy, wait a week or so until the excitement of the dividend distribution settles down. This will give you a better sense of what AOL's real value is and help decide where it stands next to companies like Yahoo.

Another competitor to keep an eye on is Google (NASDAQ:GOOG), but not necessarily because of Yahoo. Google is continually graded against Apple (NASDAQ:AAPL) and with the latter's decline over the past week, Google Inc. has seen a rise in its own stock to around $610 per share. With new iPad and iPhones trailing off, there has been room for a Google product to make serious headway.

Although both Apple and Google are direct competitors to Yahoo, the price per share difference puts the two in another echelon. Still the continued success of both companies makes it difficult for Yahoo to make big moves. On the other hand, the constant competition that Apple and Google find themselves in, helps the industry at large put out new product without immediate and direct product competition.

It is also important to remember that Google is currently having some issues with the federal government. Privacy issues have been swarming around Google, and it begs the question why there were issues with federal investigators. No company likes the federal government airing its dirty laundry and Google is no different. Keep watch on how this may affect the company at large.

While watching Google with one eye, keep watching Facebook with the other. The public offering is still on the horizon for the social network giant and speculation of its value continues to push its share value higher. There is a group, though, who thinks this is all hear say. Its claim is that Facebook does not have the ability to transform a company or business and so it won't boost the market as much as a company like Google. This is not to say that the Facebook IPO offering will not be exciting to watch, but it is important to temper expectations for the stock initially.

Yahoo has seen its competitors continue to make innovations, but the most important issue is on its own home front. If Thompson can take Yahoo and return it to previous glory, then at its current price of around $15 per share, you would be getting quite a deal. The key here though is to be patient. Yahoo should be looked at as a long-term investment with its new management. The cuts and transformation are going to be a tough process and money may be sunk during it. However, as we have seen, these moves are paying dividends already in stock value. If you have faith in the new leadership, Yahoo could emerge as a nimbler and more profitable company, letting you reap a handsome reward for your patience.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.