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Yahoo! Shares Are Cheap, But Don't Wait or the Sale May End

Stocks in this article: YELP YHOO

NEW YORK (TheStreet) - The Yelp (YELP)-Yahoo! (YHOO - Get Report) partnership illustrates why Yahoo! is a terrific stock for long-term investors.

Fair-weather investors aren't big fans of Yahoo! because CEO Marissa Mayer is using the company's $8 billion-plus war chest to try to increase long-term value and share appreciation. I continue to subscribe to the Yahoo! bull thesis and wrote two attractive investment strategies that you can use in Real Money Pro with Yahoo!.

Yelp shares gapped higher on Monday and faded lower most of the day. It was your classic buy the rumor and sell the news event.

Considering Yahoo!'s market share in search, it shouldn't be a surprise. You will want to take note of the opening price. The open is the same as the high of the day. In the future, when you see a well performing stock gap higher on so-so news and it doesn't trade even one tick above the open, you may want to consider shorting it if you're an active intraday trader. For everyone else, it's a time to take some money off the table and maybe reload a day or two later.

Yahoo! also "gapped and crapped," but buyers came in and held a reasonable amount of support. There's no reason why they didn't and no reason not to take a closer look at Yahoo! for your portfolio.

After removing cash and investments, Yahoo! is dirt cheap in my opinion, and by just about any metric you can think of. It doesn't take long to reach a conclusion that right now, you can buy the company's earnings more or less for free. You just don't see many growing and profitable companies with an earnings multiple of about three. Yahoo! is one, and I frankly don't know of another.

Yahoo! owns about 24% of Chinese Internet company Alibaba, which is expected to have an IPO this year. The best and most recent estimations place Alibaba's valuation about $150 billion, or $36 billion for Yahoo!. If we discount for transaction costs and taxes, Yahoo! should be able to walk away from its Alibaba investment with $25 billion or more. Yahoo! may or may not sell its entire stake, but regardless, the valuation remains.


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