Yahoo: The best is yet to come

Here's why the Internet company's stock is entering a period of accumulation.

By TheStreet Staff Jul 8, 2013 11:40AM

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Credit: © Robert Galbraith/ReutersCaption: Yahoo logo is shown at the company's headquarters in Sunnyvale, CaliforniaBy Marc Courtenay

Finding an undervalued stock is relatively easy, but timing your entry is an entirely different animal.

Failure to time your entry correctly increases your risk of reaching a stop loss because you entered early. Many former Apple (AAPL) investors know exactly what I mean.

Yahoo (YHOO) is an example of an undervalued company anchored in preparation and continued share-price-appreciation ability. The old-school online portal is transforming itself into an aggressive market share taker and investors are taking notice.

Yahoo shares increased over 60% from a year ago, surpassing Google's (GOOG) 48%, AOL's (AOL) 26%, Amazon's (AMZN) 25%, or Microsoft's (MSFT) 13%. In other words, Yahoo wins Best In Show over the last year among these widely followed companies. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

That's fantastic news for Yahoo's shareholders, but more important, the stars are lining up for another 30%-plus rise. I don't say that lightly, and if you follow my trading you quickly learn I hate chasing stocks, and I short most of the time. In my mind, shorting encapsulates lower risk than going long; nevertheless, when opportunity arises, I will pull the trigger on a long.

I announced my bullish bias with Yahoo in Yahoo has room to grow (TheStreet). Since my earlier article, the bullish thesis has grown.

You may not know it, but buying shares in Yahoo is a strong play on Asia. Specifically, Yahoo is a play in China and e-commerce powerhouse Alibaba. Alibaba is worth about $20 billion and Yahoo owns a 20% stake. Yahoo's $4 billion investment in Alibaba accounts for 15% of Yahoo's market cap and is the only Alibaba exposure mechanism available.

If you're thinking "so what, Amazon is the king of online commerce," you're wrong. Alibaba already surpassed eBay (EBAY) and Amazon's sales volume.

Amazon isn't new in the Middle Kingdom. After entering China's online market in 2004 through the purchase of, the company has fully demonstrated its ability to compete. What we don't know (yet), is how well Amazon can maintain American market share after Alibaba enters.

Alibaba Executive Chairman and lead founder Jack Ma has already indicated his willingness to provide venture capital in Silicon Valley. It's not a far leap to suggest that while Ma is in America, he is planning the strategic entry of Alibaba into the North American Market.

If Amazon and eBay investors aren't concerned about a tectonic shift possibility because of their current market dominance, they may want to ask BlackBerry (BBRY) investors how quickly the ground can shift.

For Yahoo investors, a North American appearance of Alibaba could involve an alliance with Yahoo, or more likely an independent Alibaba web commerce portal. Either way, an expanding Alibaba is a significant tailwind for Yahoo's valuation and earnings.

Yahoo's CEO Marissa Mayer already established the company on a conquering path, as best illustrated in Yahoo's shares increasing the before-mentioned 60%. After factoring for an Alibaba entry, I believe another 30% upside is conservative.

At the time of publication the author had no position in any of the stocks mentioned.

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