Is Yahoo! Undervalued? And Is Target a Buy?

The CNBC 'Fast Money' traders talk Yahoo!, the U.S. economy and Target following a bullish analyst call.
By Bret Kenwell ,

The S&P 500 ETF (SPY) - Get Report is down 1.1% on Monday, as investors are starting to assume that the Federal Reserve will raise interest rates in December.

However, investors shouldn't forget that the S&P 500 rallied 8.5% in October, so it's due for a breather, said Liz Ann Sonders, chief investment strategist at Charles Schwab, on CNBC's "Fast Money Halftime" show. 

The Fed's expected initial rate hike of 25 basis points isn't the concern, Sonders said. It's the fear that rates will continue to rise going forward. And while higher rates will indeed be the case, she says, the Fed will likely go at it slowly. Higher rates will likely strengthen the U.S. dollar, which is actually good for a consumption-based economy like the U.S. However, when the dollar rallies too far, too fast, it weighs on corporate earnings, Sonders said. 

Because earnings have been weighed down by the dollar, valuations have started to climb. Sonders said stock valuations aren't too high yet, but equities certainly aren't undervalued. She also said there are opportunities in European equities, as that economy continues to improve. 

Jim Lebenthal, CFO and CIO of Lebenthal & Company, said he is concerned about a slowdown in the economy. The Fed should have raised rates in September so that it could have cut rates in the event of an economic slowdown. Presently, the Fed has no "ammo," he added. 

It would have been a disaster for the Fed to hike rates only to cut them shortly thereafter, according to Stephen Weiss, founder and managing partner of Short Hills Capital Partners. Global easing from central banks will continue to fuel stocks higher, in his view.

The conversation turned to Yahoo! (YHOO) . Kara Swisher, executive editor at Re/code, said the company is in a very difficult business -- one so difficult that many executives would have likely failed in its turnaround. The company needs a seasoned executive with a lot of turnaround experience to help this company. The valuation will become more clear once the Alibaba (BABA) - Get Report stake is spun off. 

Eric Jackson, managing director at Ader Investment Management, was far more critical of CEO Marissa Mayer, saying she does not have the skills to successfully turn around a company of this size. He's still long the stock, because he believes the core business is undervalued. That core business would be attractive to a number of companies, particularly for media names like CBS (CBS) - Get Report , 21st Century Fox (FOXA) - Get Report and Comcast (CMCSA) - Get Report , just to name a few examples.

Josh Brown, CEO and co-founder of Ritholtz Wealth Management, argued that Yahoo! really doesn't have that much value -- with or without new management. It's basically a banner-ad business; it's not a media property and hardly a tech company. Its innovation is far too inferior and the situation at Yahoo! is like a "melting ice cube," he said. 

The panel turned toward retail. Despite analysts at Citi initiating shares of Target (TGT) - Get Reportas a buy and assigning a price target of $88, Weiss says there will be a better buying opportunity. 

Lebenthal added that the stock doesn't really jump out ahead of its peers, as it's just a "fair market value" retailer. Brown says the stock is likely headed lower, but could find support nearby when its dividend yield gets a little higher. 

Pete Najarian, co-founder of Optionmonster.com and Trademonster.com, likes the stock and thinks there could be more upside. Target has a solid dividend and an attractive share repurchase plan.

Priceline (PCLN) is down 9.5% following its earnings results. Brown reminded investors that Priceline is a volatile stock, so declines like this shouldn't be too surprising for long-term investors. Support is holding up well at current levels. 

The fact that the stock had rallied to new 52-week highs ahead of its earnings report isn't help matters, Najarian said. Look for the stock to find support near its key moving averages, starting with the 50-day.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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