“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:).
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:
- 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:) Television Distribution to syndicate CTD’s entertainment news magazine The Insider. Yahoo also is joining up with Comcast‘s (NASDAQ:) 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 …
- 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:). 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.
- Ad Development: While Yahoo has fallen to bronze-medal status in American Internet search behind Google and Microsoft‘s (NASDAQ:) Bing, there’s promise on the ad technology front. In December, Yahoo! announced a 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.
- 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.
- 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 InvestorPlace.com. As of this writing, he was long YHOO and MSFT.
