Friday, January 6, 2012
Some of the best fund managers in the world have lost money on Yahoo.
I showed you a who's-who in September: Billionaire Carl Icahn, legendary Texas oil and gas executive T. Boone Pickens, and hedge-fund manager David Einhorn bought shares of the struggling Internet search giant over the past 24 months – and all lost money.
The Internet search engine has a large stake in Alibaba – a leader in the Chinese e-commerce space. It also has a huge stake in Taobao, the eBay of China. Merchandise sales are growing 100% annually.
Spinning off these assets would bring more value to Yahoo (NASDAQ: YHOO). However, the company's management team has done little to unlock this value prompting hedge-fund manager Daniel Loeb to call the current management team "clowns."
Instead of dealing with a management team uncommitted to improving shareholder value, I suggested buying Google instead. The Internet search giant just reporting record sales and earnings. It was also cheaper (based on price to earnings) and growing faster than Yahoo.
Since my recommendation, Google jumped to $135 a share. The stock has outperformed Yahoo by 16%.
I still don't like Yahoo. It's more expensive than Google. But I'm not excited about Google, either.
The stock appears to be fully valued right now. It trades at 15 times 2012 earnings. That's a 20% premium to the S&P 500 index. It also trades at a 25% premium to Apple – which is growing earnings at a faster pace.
Plus, Google receives about 35% of its sales from Europe. Most of Europe is expected to fall into recession in 2012. Advertising will slow if this happens.
My advice is to take profits on Google. The company has been knocking the cover off the ball over the past few quarters. However, expectations are now sky-high for the stock. In other words, most of the positives are factored in.
"Big Tech" made Growth Stock Wire readers a lot of money in 2011. Review some of our best calls here...
"Billions of devices means even more billions of little parts that go into each device," Larsen Kusick writes. "For a safe way to play the big trend, you can go with the 800-pound gorilla of the industry – Intel." Readers are up more than 25% since last January.
"Nokia's demise boosts a big opportunity in the global mobile phone boom," Larsen said. He recommended shares of Google and Apple, both of which are up 20%-plus.
"The safest way to trade and invest in this long-term trend is through dominant tech companies like Intel, Qualcomm, and Apple," Larsen writes. Shares are up 30%, 12%, and 11%, respectively, since September.
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