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5 Reasons Why I’m Not Crazy for Buying Yahoo

I'll brave the derision and hope time will prove me right


“Practice what you preach.” It’s a simple phrase that basically encourages you to put your money where your mouth is, as far as advice goes.

Well, heading into the New Year, I talked about a number of investing resolutions, and I’m right on top of one of them right now. That is, I’m taking a flyer on a stock that might raise a few eyebrows.

I’ve gone and bought shares of Yahoo (NASDAQ:YHOO).

You should’ve seen the look from InvestorPlace‘s Jeff Reeves when I dropped the news on him in the hallway. Jeff is not what I would consider a fan of the stock or the company.

But I am, and it’s my money. Still, it’s a fair question. Why would I buy Yahoo? Well, here are five reasons:

  1. Yahoo Properties: From Yahoo Sports to Yahoo Finance, the company has properties that users find entertaining and newsworthy. Yahoo is looking to expand those offerings, recently inking a deal with CBS (NYSE:CBS) Television Distribution to syndicate CTD’s entertainment news magazine The Insider. Yahoo also is joining up with Comcast‘s (NASDAQ:CMCSA) NBC Sports to supplement each others’ sports content and to “collaborate on premium sports news and events coverage both online and on the air.” Expect CEO Marissa Mayer & Co. to keep targeting more cross-promotional opportunities. Speaking of which …
  2. Marissa Mayer: Go ahead and tell me she doesn’t have the chops or the background for this kind of gig after spending most of her successful career growing at Google (NASDAQ:GOOG). Mayer is a rock star in the social media and technology world, and she’s putting her stamp on the company in lots of ways, including things like personnel decisions and … well, defining what the company is and how it will get there. And I think she’s the kind of CEO that can execute.
  3. Ad Development: While Yahoo has fallen to bronze-medal status in American Internet search behind Google and Microsoft‘s (NASDAQ:MSFT) Bing, there’s promise on the ad technology front. In December, Yahoo! announced a new cost-per-lead tool in which “brands will only pay for advertising when forms are filled out on their sites, generating potential leads,” according to marketing service agency Brafton. Yahoo says the tool has yielded a 6% increase in clickthrough rate.
  4. Cash and Cash Flow: Yahoo’s revenue and earnings growth hasn’t been anything to crow about in the past three years. The good news is that YHOO still is flush with cash — to the tune of nearly $8 billion as of September 2012. Combine that with $900 million in free cash flow, and you’ve got a liquid company that can weather plenty of storms. The $7 billion-plus sale of its Alibaba stake gives Yahoo room to browse possible business-driving acquisitions while absorbing new acquisitions OnTheAir and Stamped, two mobile-based tech plays.
  5. The Price Is Right: Yahoo is trading at a dirt-cheap 6 times trailing 12-month earnings, and while its forward P/E of 17 (based on FY13 earnings) is a little frothier, it’s not unwarranted. There’s a potential growth story here, as analyst expectations are for 10% earnings growth over the next few years — that sounds surprisingly good for a supposedly dying online portal.

I expect these factors to help prove out my pick … and make incidental eye contact with Reeves less painful.

Marc Bastow is an Assistant Editor at As of this writing, he was long YHOO and MSFT.

Article printed from InvestorPlace Media,

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