NEW YORK (TheStreet) -- Investors lapped up shares of Yahoo! (YHOO - Get Report) in 2013 like pudding on Scooby Doo's nose. The key justification and catalyst propelling Yahoo!'s stock to new 52-week highs may surprise you, but it's the reason I became extremely positive on this one.
After analyzing the income and balance sheets, I couldn't help but subscribe to the bull thesis; from the time I wrote Yahoo! was a buy in "Yahoo! has room to grow," shares increased significantly.
With shares trading near $39.50, is it time to take the money and run? I don't think so, and I'm not alone. TheStreet's Chris Laudani arrived at the same conclusion in a Real Money piece earlier this week. With that said, hedging while the stock and market are at all-time highs isn't crazy either. I will show you how to hedge your position or gain new exposure using options that will help temper your risk.
First, let's take a look under the hood and see why Yahoo! shareholders are walking around grinning ear to ear.
Thanks to co-founder and former CEO Jerry Yang's fruitful investments, Yahoo! may encompass more with hedge funds than technology companies. The company's investments in Alibaba and Yahoo! Japan account for almost all the stock appreciation in 2013. That's right; Marissa Mayer, the latest and I think the greatest in a series of CEOs hasn't added much if any new value....yet.
Compared to online competitors Microsoft (MSFT) and Google (GOOG), Yahoo! appears to enjoy strong shareholder confidence based on the trailing earnings multiple investors are willing to pay. The numbers are deceiving, however.
Of the $40 billion in current market cap, about 55% or more derives from Asian investments. Many investors are expecting Alibaba to go public this year and Yahoo! has about a 24% interest. Yahoo! is expected to sell about 40% of its stake because of agreements with Alibaba. Yahoo! already sold about half its interest back to Alibaba for $6.3 billion in cash. The money from the sale is fueling Mayer's buying spree to acquire new Internet assets.