Yahoo! (YHOO) and Alibaba (BABA) are zeitgeist stocks. They capture the moment. Yahoo! ran up huge because people wanted a chit in the Alibaba game. Yahoo! owns a ton of Alibaba, and was able to get $5 billion after taxes from the deal.
Alibaba captured the fancy of both the retail investor who is down on the stock, and the mutual fund buyer who was up on half and is getting a good average on the rest. I like both stocks. Here's why.
First, Yahoo! is valued at less than nothing if you back out the investments. If Yahoo! just buys back stock, it can shrink the float and magnify the $1-per-share. It can make this even on a bad day. The idea that Yahoo! can embark on an aggressive mergers-and-acquisition (M&A) plan makes me salivate. If you buy HomeAway, Yelp (YELP) and GrubHub (GRUB) at a 30% premium for $15 billion, you would dominate the listings, commentary and delivery business. How can that not be a win? This can happen. With the amount of money Yahoo! can raise and the amount it has raised, why think of the company as the way it looks now?
Alibaba had to come in, as the prospects for a profit are too pronounced, and the deal managers were seemingly OK with even mutual funds blowing the stock out. Nevertheless, Alibaba is getting closer to where the funds will return. If you get a million shares at $68 each and a million shares at $82 each, you get this terrific $75 average, paying 30x earnings for a 30% grower. 1x earnings? That's just too cheap and makes too much sense. Remember, these are real earnings, not page views or eyeballs.
Lots of people are in these two stocks. I think Alibaba can be bought now but I would prefer $82. Don't count me as a Yahoo! hater. I think Yahoo! can reinvent itself with acquisitions or magnify its earnings with buybacks. Either stock is just fine with me.