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What do you do with a stock that is up 9 straight points that reports an absolutely terrific quarter but still doesn't allow a lot of the margins to show because it is still spending and building its business? What do you do with a stock that has to perform its ritual selloff before it rallies again?
dilemma to a T, isn't it? We know that no matter what Yahoo! says, it can't justify the rally this stock has just undergone. But no matter what the company says, two weeks from now, the folks who thirst for growth, those who can't handle the single-digit growth that most stocks offer, will come back to the stock. They will bid it up and, barring a catastrophe, this is one of those stocks that has "52-week high on the last trading day of December" written all over it.
People in my office used to despise what I often call the "inevitability" of stocks. There would be these stocks that were so loved that you
the buyers couldn't stay away. Moth to light bulb, so to speak.
Yahoo!'s the quintessential light bulb in that analogy. Think of what happened last quarter. The cognoscenti and the intelligentsia -- those who weigh in quickly on these things -- immediately pronounced Yahoo! over. In fact, critics were gripped with the "where's the leverage in the model?" question. I must have heard that a dozen times in 24 hours. When are they going to show how much money they are going to make? Are they spending too much? What's with Sue Decker the CFO; doesn't she know we want to see expanding margins?
For two weeks that chatter dominated the stock, making it toxic for anyone who picked at it.
And then it was forgotten in a sea of companies producing single-digit revenue growth and without a lot of sex appeal. The stock resumed its climb until, alas, it went to $40. That's where it bounced back from the other day, in part because smart people are anticipating that this dance could be put on again.
I hate this kind of stuff. I hate it because the stock, as it is, already defies traditional analysis. It is entirely in the hands of short-sellers who are trying to bash it and mutual funds that are trying to prop it up, with retail investors long it no matter what. You used to be able to count on the Japanese to sell some stock three days after the quarter, but that seems to have stopped with the turn in Japan. So supply could be tight.
In that battle, I prefer to bet with the mutual funds. They have unlimited firepower and they once again are getting money in. Their disgraceful buying habits, which consist of taking up stocks regardless of valuation because of their heads-they-win tails-you-lose method of investing (they have none of the downside and share in the upside only, as opposed to hedge funds, which feel the downside acutely), are back as if nothing happened between 2000 and 2003.
And Yahoo! is mutual funds' exhibit A of a stock that must be owned regardless of thermonuclear war.
In the meantime, though, we await the quarter and the short-term battle even though we know who will win the war.
James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made.
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