Yahoo!, Inc. (YHOO) has been one of the biggest laggards in the tech sector for the last several years. Investors have been chronically disappointed by "restructurings", a seemingly endless amount of turnover in the CEO and other high-level management positions, plus the disastrous decision (for shareholders) whereby Yahoo failed to consummate a buyout offer from Microsoft (MSFT) a few years ago for about $30 per share. But that is all in the past, and investors should consider some very recent developments and future potential catalysts for a higher share price. Here are a few reasons to consider Yahoo shares:
1. Yahoo shares are trading around $15 right now and the stock appears undervalued. The stock has a book value of $10.81 per share, and the company has a rock-solid balance sheet with about $2.2 billion in cash and almost no long-term debt. Since this company is asset rich, it is likely to see cash balances grow as it makes new deals.
2. Yahoo has launched a new browser called "Axis" that features additional security measures and predictive search capabilities. This is one small sign that the company is still trying to innovate as well as improve existing products and services for customers. If Yahoo can innovate and more successfully monetize its offerings, profit margins could increase substantially.
3. Yahoo recently announced a deal to sell part of its stake in Alibaba for about $7.1 billion. The deal is for just half of Yahoo's stake and it calls for Yahoo to receive about $6.3 billion in cash and around $800 million in preferred stock. This will significantly boost Yahoo's cash balances which could allow it to buy back shares, pay a special dividend to shareholders, and invest for future growth. To put this deal into perspective, it's important to note that it implies a total value of about $14 billion for Yahoo's stake in Alibaba, and that Yahoo has a current market capitalization of about $18.7 billion. Based in part on this deal, one analyst upgraded the stock to a buy and set a $20 price target.
4. Activist investor Dan Loeb, has a major stake in Yahoo through his investment firm, Third Point. He has been very active and has successfully brought change to Yahoo by pointing out resume issues with former CEO Scott Thompson. Based on Dan Loeb's track record and tenacity, investors are likely to see more input from him and even a more responsive and shareholder friendly board of directors at Yahoo.
Key Data Points For Yahoo From Yahoo Finance:
- Current price: $15.36
- 52-Week Range: $11.09 to $16.79
- Dividend: none
- 2012 Earnings Estimate: 96 cents per share
- 2013 Earnings Estimate: $1.12 per share
- P/E Ratio: about 8 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
