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TheStreet Open House

4 Big Stocks Ripe for a Sharp Pullback


Along with Netflix's Reid Hastings, Yahoo!'s ( YHOO) Marissa Mayer deserves kudos for reviving a seemingly broken business model. Mayer has sought to light a fire under Yahoo!'s sleepy management team, and the company is again garnering buzz in the tech/media industry.

The truest measure of Ms. Mayer's efforts: Yahoo!'s shares have risen from $16 when she arrived in July 2012 to a recent $26.

>>5 Rocket Stocks Ready for Blastoff

There's one small problem with all of Yahoo!'s good fortune. This is still a company struggling for growth. Sales are expected to grow just 1% this year (to $4.5 billion) and just 3% in 2014. And by then, per-share profits are expected to be rising at around 9% (to around $1.50 a share in 2014).

To justify any further gains for this stock, it's crucial for Yahoo! to unveil some major growth initiatives, and we just witnessed one. The recently announced acquisition of Tumblr exemplifies the bold thinking that Yahoo! needs, but it may not be enough to move the needle in terms of sales and profits. The $1.1 billion purchase of the multi-media-focused social networking site is aimed at stemming steady customer defections: Yahoo! has seen a decline in page views (on a year-over-year basis) for 13 straight months. Yet Tumblr had just $13 million in revenue in 2012, and Yahoo! doesn't just need page views -- it needs revenues.

Time will tell if this type of deal will do the job or if it represents a desperate measure to restore Yahoo!'s relevance.

To see these potential market laggards in action, visit the 4 Big Gainers Set to Reverse Course portfolio.


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