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Yahoo!: The Best Is Yet to Come

NEW YORK ( TheStreet) -- 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 - Get Report) investors know exactly what I mean.

Yahoo! (YHOO - Get Report) 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 marketshare 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.

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." 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 $50 billion and Yahoo! owns a 20% stake. Yahoo!'s $10 billion investment in Alibaba accounts for 32% 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 Joyo.com, 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 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.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.

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