Yahoo!, Inc. (YHOO) has been one of the most disappointing tech stocks for a number of years. It used to be a dominant Internet company with explosive growth and a stock price to match. However, it has failed to capitalize on a number of opportunities and trends that other competitors have seized on, and the stock price seems to be permanently stuck in neutral. In the past few months, the stock has traded between roughly $14.80 to about $16. Yahoo! just announced that it has appointed Marissa Mayer as CEO. Since Ms. Mayer has a reputation as a brilliant innovator from her many years at Google, Inc. (GOOG), this was seen as good news by many and the shares of Yahoo! popped over $16 in after hours trading. However, this rally might not last. Here are some reasons why investors might want to consider selling into this rally:
1. There is no doubt that Marissa Mayer is smart and capable, however, with no apparent experience in turning around companies or as a CEO of a major company, there is reason to be skeptical. The challenges Yahoo! is facing and the level of competition from other companies is formidable. This company has seen a number of CEO's in the past few years, and none have delivered the results that many investors initially expected. Even a time-tested CEO like Carol Bartz who came to Yahoo! from Autodesk (ADSK) had a tenure that did not last long. Have you ever seen a restaurant location that sees continual failure and yet some new hopeful owner will come in to try a new concept at that same location, and yet each time it doesn't work out? That seems to be the same pattern with CEO's at Yahoo!
2. While this CEO appointment will grab the headlines for a couple days, the excitement might not last for long. It's not likely that a CEO will be able to implement changes as fast as the market would like. That means the stock will probably go back to where it has been marking time, right around $15.50.
3. Investors at JC Penney (JCP) gave Ron Johnson the benefit of the doubt when he joined the company as CEO. Since he was considered by many to be a "genius" behind the retail store strategy at Apple (AAPL), many expected he would turn JCP into a wonder-retailer. I am sure Ron Johnson is also smart and capable, but I also think just about anybody could have headed up Apple's retail strategy and looked brilliant, because those products sell themselves. The same could be true for some "key" employees at Google. It's important for investors to realize that a single person is rarely behind massive growth at a company. Often people and even entire companies are credited for brilliance, when the reality is that they were just riding a massive secular trend.
4. Selling into rallies has historically been the best strategy. Period. Yahoo! has been and probably will continue to be a value trap for many shareholders.
Key Data Points For Yahoo From Yahoo Finance:
Current price: $15.36
52-Week Range: $11.09 to $16.79
2012 Earnings Estimate: 97 cents per share
2013 Earnings Estimate: $1.13 per share
P/E Ratio: about 16 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.