Waiting for Yahoo!

 | Jan 07, 2013 | 6:02 PM EST
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Yahoo! (YHOO) is up 25% in the last year, which is much better than the Nasdaq which is up 15% over that same period. However, in the past month, Yahoo is up 1.25% vs. the Nasdaq being up about 4%. Yahoo volume dropped during Christmas and New Year weeks which isn't that surprising.

On Monday morning, Bernstein actually downgraded the stock saying it doesn't have clarity around the Alibaba IPO timetable and thinks the recent sales reorganization might upset earnings in the next six months. So, the analyst sees the stock pausing after a nice run to consolidate gains for a while.

I think Yahoo is at the beginning stages of a longer-term breakout. In fact, I think we're only about a third of the way through its long-term rise which will continue to play out this year.

As I've said before here at Real Money, I think the best preview of Yahoo in 2013 is AOL (AOL) from 2012. AOL wasn't even a hated stock in August 2011 when it announced poor earnings and dropped to $10 a share -- it was an ignored stock.

People thought AOL was a dinosaur name. Why would you want to own it when it was so passé? However, for those who actually did the work, there was an enormous amount of value in the name which wasn't getting recognized in the stock.

Some of this was simply adding up the value of past acquisitions (like Huffington Post and Advertising.com); some was their patent value; and some was due to looking at what they were doing through a stock buyback program announced in August 2011 with the bad earnings.

If you did all that back then, you could get to a $30 a share number -- even though that seemed preposterous to propose back then.

It didn't happen overnight but it got there.

Of course, there were some big catalysts along the way which propelled AOL and got people to start piling into the stock. The big one, of course, was its big patent sale to Microsoft (MSFT) which turned around and sold half to Facebook (FB) which was in a patent dispute with Yahoo at the time.

Overnight, after announcing the deal, AOL's stock went up 40%. And it just kept going up after that, as people started to get excited about a dividend and potential buybacks. The patent deal got it solidly into the $20s. It eventually got above $40 and is now back around $30.

Yahoo is doing a lot of operational things these days and is continuing to buy back its stock with the proceeds from the recent Alibaba stake sale.

There are two events that could help Yahoo's stock shoot up this year overnight (although it won't be a 40% move because Yahoo's a lot bigger than AOL was):

  1. A firm date of an Alibaba IPO, and
  2. A Yahoo Japan stake sale back to Softbank.

The first is anticipated at but hasn't been priced in to the stock. The second is not on anyone's radar, yet it could lead to $6 billion (pre-tax) dropping into Yahoo's lap overnight.

The other thing that would help the stock is a big layoff of employees. That's still very possible and could help increase the company's EBITDA. No one is counting on it though. If Yahoo was going to do something and the near-term sales were going to be challenged, I would think now is a good time to announce something.

There's also the wild possibility that Yahoo could get bought, but I think that's more likely a possibility after at least another year of Marissa Mayer's hard work fixing the company's core properties.

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